FM unveils first tranche of Rs20trn COVID financial package

Rs3L cr collateral-free loans to strengthen MSMEs

NEW DELHI: The Finance Minister Nirmala Sitharaman on Wednesday released the first tranche of the Rs20 lakh crore COVID revival package announced by the Prime Minister Narendra Modi a day earlier on Tuesday, with the MSME sector getting a lion’s share of benefits in the form of lavish credit push to the extent of about Rs3.75 lakh credit.

The Wednesday’s announcement also included steps to help taxpayers by reducing TDS and TCS by 25 per cent thus unlocking about Rs50,000 crore to the taxpayers, extension of the government support to EPF contribution, further special credit schemes for NBFCs and microfinance companies, who were not benefited by the earlier RBI initiatives; financial support to Discoms, relaxations to contractors and real estate sector and extension of tax assessment deadlines.

The FM refused to divulge details on how the government proposes to raise funds to finance this humongous package. On being queried on the source of funds, the FM sought to limit her response to, “Those details will be announced once all tranches of this package are announced. What I can now say is that there will be some alteration to the government’s borrowing schedules and this could be one of the ways identified to raise the funds required for the COVID financial package.”

The Kerala Finance Minister Dr Thomas Isaac debunked Sitharaman’s announcements on Wednesday as disappointing and lacking direction. Dr Isaac has always been advocating for direct benefits to the ordinary man and his oft-repeated stand on permission for the states to borrow more, which obviously failed to find mention in the FM’s package on Wednesday.

Nirmala Sitharaman’s briefing on Wednesday was sequel to PM’s announcement on Tuesday of Rs20 lakh crore Aatma Nirbhar Bharat package aimed at making India self-reliant.

While briefing the press, the finance minister said that the Aatma NIrbhar Bharat rests on five pillars: Economy, Infrastructure, Technology-driven systems, Demography, and Demand, and the focus will be on factors of production – Land, Labour, Liquidity and Laws.

With the world trade set to witness a slowdown for an unpredictable period, the PM had exhorted the people to make local brands global in the drive towards building a Self-reliant India
MSME gets a lot
Nirmala Sitharaman read out the six initiatives for strengthening the MSME sector in India which is considered the lifeline for the country’s employment. With around 63.4 million units throughout the geographical expanse of the country, MSMEs contribute around 6.11 per cent of the manufacturing GDP and 24.63 per cent of the GDP from service activities as well as 45 per cent of India’s manufacturing output. As per the latest data, the MSME sector in India employs over 100 million people.

The key takeaway for the MSMEs was the collateral-free loan of Rs3 lakh crore announced for the sector. The FM said this initiative will benefit about 45 lakh units spread over the length and breadth of the country.

The stressed MSMEs also will be entitled to get Subordinate debt provision of Rs20,000 crore announced for 2 lakh MSMEs. These loans are meant for units whose existing loans have turned NPA.

Moreover, there is another plan for MSMEs whereby Rs50,000 crore equity infusion will be effected. A fund of funds with a corpus of Rs10,000 crore will be set up to help these units expand capacity and later help them go for listing if they so desire.

Definition of MSMEs

Definition of MSMEs has been revised in order to allow MSMEs to remain MSMEs even if they grow beyond the existing limits prescribed for MSMEs in terms of investment and turnover so that they will continue to enjoy the benefits available for MSMEs.

It has also been decided to disallow global tenders for deals up to Rs 200 crore for government contracts so that MSMEs will be able to take part in those bids.

EPF Support
A liquidity relief of Rs2,500 crore EPF support is being given to all EPF establishments. Government of India will continue to pay the EPF contribution for another three months until August, and this is expected to benefit more than 72 lakh employees in the country.

Statutory EPF contribution for all organisations and their employees covered by EPFO has been reduced to 10 per cent from the current 12 per cent. However, this will not apply to government entities. The initiative is estimated to infuse Rs6,750 crore into these organisations.

Credit for NBFCs/HFCs/MFIs
A special liquidity scheme to the tune of Rs30,000 crore has been announced to support NBFCs, HFCs and MFIs which have not been benefited as desired by an earlier liquidity infusion scheme announced by RBI last month. The new scheme is fully guaranteed by government of India.
Another Rs 45,000 crore partial credit guarantee scheme has also been announced for NBFCs, whereby the first 20 per cent loss will be borne by government of India.

Support for Discoms

A one-time emergency liquidity injection of Rs90,000 crore against their receivables will be carried out by Power Finance Corporation Ltd and REC Ltd. This will help power discoms that currently owe Rs94,000 crore to power producers and transmission companies settle their dues.

 

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