Economic Relief: Step towards Aatmanirbhar BharatBy
Adithya Mokshagundam, 14-May-2020
Prime Minister has declared his vision to have a self-reliant India. He identified five pillars to achieve this position. They are
- Vibrant Demography
He declared an Rs.20 Lakh Crore package to combat the slump in the economy due to lockdown. It includes the previous
- Rs.8.04 Lakh Crore announced by RBI during the last month
- Rs.1.70 Lakh Crore announced by the Finance Minister during the last month
Today, the Finance minister has announced the start of various economic reforms. FM aims to support the dream of Prime Minister to build a self-reliant India. The current declared reforms majorly focus on
- MSME (Micro, Small and Medium Enterprise)
- EPF (Employee Provident Fund)
- NBFC (Non-Banking Financial Company), MFI
- Real Estate
- Tax reforms
1) Automatic Collateral Free loan:
FM announced a 3 Lakh Crore collateral-free automatic loan for MSMEs. This loan is for four-year tenure and is 100 percent guaranteed. This will last until October 21, 2020. There is a moratorium up to 12 months on principal repayment.
The government guarantees the principle provided by the financial institutions, NBFC, and the interest on the principle. The chances of default in case of bankruptcy is taken care of by the government.
2) Debt to Stressed MSME’s:
FM announced Rs 20,000 Crore subordinate debt for stressed MSMEs Functioning MSMEs which have NPAs or are stressed would be eligible. The government will provide support of Rs 4,000 crore to Credit Guarantee Trust for MSMEs. The Central body will give partial credit guarantee support.
3) Formation of Fund of Funds:
FM announced the creation of a fund with Rs.50,000 Crore equity infusion. This fund will have various sub-funds which will lend help to listed MSME’s. This will provide equity funding to MSME with growth potential and viability.
4) Definition of MSME:
- The manufacturing and service industries are no longer differentiated.
- The definition of companies that come under the MSME is modified.
|Manufacturing||Services||Manufacturing & Services|
|Micro||Investment < Rs.25 Lakh||Investment < Rs.10 Lakh||Investment < Rs.1 Cr and Turnover < 5 Cr|
|Small||Investment < Rs.5 Cr||Investment < Rs.2 Cr||Investment < Rs.10 Cr and Turnover < 50 Cr|
|Medium||Investment < Rs.10 Cr||Investment < Rs.5 Cr||Investment < Rs.20 Cr and Turnover < 100 Cr|
5) Global Tendors
Indian MSMEs and other companies have often faced unfair competition from foreign companies. Therefore, global tenders will be disallowed in Govt procurement tenders up to Rs 200 crore. Necessary amendments to General Financial Rules will be affected. This will be a step towards self-reliant India and support Make in India. This will also help MSMEs to increase their businesses.
Post COVID-19, since trade fairs and exhibitions will be difficult, we will provide e-market facilities. The Government of India and Central Public Sector Enterprises (CPSE) will honor every MSME receivable in the next 45 days.
7) EPF contribution:
The government will continue to provide EPF of both employer and employee for the next three months. Companies with less than 100 employees and where 90% of employees are earning less than Rs.15000 per month. This is around Rs.2500 crore impact on government. FM has also reduced the EPF contribution from 12% to 10% for the next three months. This increases liquidity for the next three months.
The government has declared a reduction of TDS/ TCS by 25% to increase the liquidity available to both companies and individuals. This does not reduce the impact of taxes only postpone the payment.
9) IT returns filing:
All pending refunds of a charitable trust, non-profit business, cooperatives, and small partnerships shall be issued immediately. Due date of all I-T returns for FY19-20 from July 31, 2020, and October 31, 2020, extended till November 31, 2020. Tax audits extended from September 30, 2020, till October 31, 2020. The date of assessments getting barred as of September 2020 is extended till December 2020. Those who are getting banned on March 31, 2021, are being extended till September 31, 2021.
Real Estate/ Contractors:
The FM has declared Covid-19 can be considered as a Force Majeure. This ensures that the developers are given a leeway of 6 months to complete the contractual obligation. They are not given any penalty for failure to complete the project on time. RERA will issue a fresh registration certificate with modified dates.
In a relief to contractors, the finance ministry announces extension of upto six months to be provided by all central agencies like Railways, Ministry of Road Transport and Highways, Central Public Works Dept.
This will cover construction work and goods and services contracts, completion of works and intermediate milestones, and also a concessional period in PPP contracts.
To facilitate greater liquidity, government agencies will partially release bank guarantees to the extent of the completed contract so that cash flow improves.
FM proposed to infuse liquidity of Rs.90000 Crore to DISCOM against receivable. The loan will be given against state guarantee to DISCOM to discharge their liability to GENCO. This benefit will be passed onto the customers.
Govt will launch a Rs 30,000 Crore particular liquidity scheme. Under this scheme, the investment will be made in both primary and secondary market transactions in investment-grade debt paper of NBFCs/HFCs/MFIs. This will supplement RBI/govt measures to augment liquidity. The securities will be fully guaranteed by govt of India.
It is an existing PCGs scheme to be extended to cover borrowings such as the primary issuance of bonds/CPs. First, 20 percent of loss will be borne by the guarantor that is the government of India. This scheme will result in liquidity worth Rs 45,000 Crore
Most of the above schemes are for facilitating liquidity in the market. The direct fund transfer to either the companies or the people is minimal. However, there is a further stimulus package to come, which will address the concerns. This creates an opportunity for the government to make reality the hope of Indians to have the economic reforms first delivered in 1991.