A day after Prime Minister Narendra Modi announced a financial package worth Rs 20 lakh crore, it was finance minister Nirmala Sitharaman who addressed a presser and gave shape to the package.
Bengaluru: In his address to the nation, Prime Minister Narendra Modi gave a lot of importance for India to become self-reliant or self-sufficient. He even announced a financial package worth Rs 20 lakh crore to extricate India out of the economic sluggishness owing to the coronavirus pandemic.
A day, later it was finance minister Nirmala Sitharaman who jumped into the fray and gave shape to the Prime Minister’s dream of self-reliance.
Let’s examine the contours and their impact:
1. Measure:
Rs three lakh crore emergency credit line for MSMEs
Impact:
45 lakh micro, small, medium enterprises can avail loans without any guarantees, offering fresh collaterals.
About 20 percent of their outstanding loans with banks can be accessed through this fresh credit line.
Companies and firms with outstanding loans between Rs 25 crore and Rs 100 crore will be eligible for these fresh loans.
The emergency credit will be for four years that include one-year moratorium on payments.
In effect, these companies and businesses that avail emergency credit now need not begin their repayments till next May 2021.
This measure will improve the credit flows to firms and also help banks to revive the process of loans.
Already sanctioned loans were also not availed by companies due to lockdown. Hence banks had parked their excess funds with RBI. Now, this is likely to change.
These new loans would be 100 percent guaranteed by the government. In effect, banks and non-banking finance companies (NBFCs) have no risk in making fresh lending.
2. Measure
Rs 20,000 cr for stressed MSMEs
Impact:
This fund is for small companies that are in complete distress. About two lakh small firms will benefit from this fund to be managed by Credit Guarantee Trust.
Rs 4000 crore will be immediate burden for the government. This money will be given to credit guarantee trust to leverage and help the small businesses that may be heading for a collapse.
This money will come into small firms as equity or share capital.
3. Measure
Rs 50,000 crore for MSMEs that are viable
Impact:
This dedicated fund is for small companies that can possibly survive and become profitable right away with some support.
Companies can use this money to expand their business and diversify their product lines.
This will allow small companies to increase their business, substitute imports from countries like China.
4. Measure
Definition of MSMEs changed
Impact:
Companies or businesses with investment up to Rs one crore and turnover up to Rs 5 crore will be treated as micro enterprises with all tax benefits and tax holidays.
Firms with investment up to Rs 10 crore and yearly business of Rs 50 crore will now be treated as small companies.
Businesses with investment up to Rs 20 crore and turnover of Rs 100 crore will be treated as medium enterprises.
The same rule will apply to both manufacturing and services companies with all the benefits.
Some laws will have to be changed. Since parliament is not in session, perhaps an ordinance or an executive notification is the way out.
This will give companies the aspiration to grow without losing tax benefits and other perks.
5. Measure
No global tenders for supplies up to Rs 200 crore
Impact:
Government departments & state-run PSUs will henceforth only give supply contracts up to Rs 200 crore to local companies.
In effect, all Chinese companies that were hitherto taking small government contracts would not be in race.
Different PSUs will also have to take a board decision to this effect.
All tenders up to Rs 200 crore will be done online/ digitized format to limit possible corruption.
Unfair competition between foreign and small Indian firms will also be eliminated.
6. Measure
e-market linkages for MSMEs in international business
Impact:
Indian companies, PSUs may not be able to participate in any exhibition or fair anytime soon after Covid 19.
These companies will get government support to sell their products and services to international customers through the e-market linkages.
This will also give a boost to Make in India campaign taken up by the centre.
Financial technology companies will be roped in to help the local businesses.
7. Measure
24 percent EPF contribution to be paid by govt
Impact
12 percent employer contribution and 12 percent employee contribution to EPF in private companies will be paid by government.
About 72.22 lakh employees in private sector with pay packets of Rs 15,000 per month will benefit.
This will be done for June, July, August 2020. Govt had already paid for March, April, May 2020.
This will mean government will have to spend Rs 2500 crore in addition.
It will help employers to retain their workers and continue with their businesses.
8. Measure
Govt & PSU employees also to get EPF relief
Impact:
Central government employees in lowest bracket also need not contribute their PF contribution next three months. (both employer and employee contribution of 12 percent each).
For PSU employees, the workers contribution has been reduced to 10 percent. But company’s contribution will continue to be 12 percent.
This will be done in 6.5 lakh establishments and 4.3 crore workers will benefit.
It will cost the government Rs 6750 crore.
9. Measure
Rs 30,000 cr support for NBFCs, housing finance companies and micro-finance companies
Impact:
This is to ensure that commercial debt paper that is traded in market does not collapse.
All deals in primary and secondary market will get this cover.
All such debt paper will get 100 percent guarantee from government.
This will give investors confidence to invest in debt paper of these companies.
10. Measure
Rs 45,000 cr guarantee cover for NBFCs
Impact:
Government seems to be supporting NBFCs that are crucial to lending in several sectors.
Earlier guarantee cover scheme has been expanded.
Losses up to 20 percent in commercial paper of NBFCs will be borne by the government.
These losses would also be covered on NBFCs bonds.
This will deepen trading in bond market and instill confidence in NBFCs for investors
11. Measure
Rs 90,000 crore lifeline for power sector
Impact:
Power distribution companies impacted as cash flows have been seriously hit due to lockdown and non-payments.
Power Finance Corporation & Rural Electrification Corporation to provide immediate funds against receivable bills of power distribution companies.
State governments will guarantee PFC and REC loans.
With this fund support, power distribution companies will clear bills of generation companies.
Customers will get direct discount on power bills.
Reforms in power sector will be undertaken.
This is just a one-time measure
Outstanding power bills have been estimated to be Rs 94,000 crore.
12. Measure
Relief for contractors
Impact:
Contractors will get six months to complete projects in railways, roads, highways, central public works department.
No additional costs will be charged on contractors.
Road concession agreements will also be extended by six months.
Some guarantees of contractors will also be released.
13. Measure
Support for Real Estate
Impact:
Real estate developers get six months more to complete projects without any penalties.
Cut-off date for such projects set at March 25, 2020.
These projects can now be completed by September 25, 2020.
All real estate projects under registration of the sector regulator can also be completed in next six months.
This will de-stress a lot of real estate developers looking for buyers of flats and commercial spaces.
14. Measure
Rs 50,000 crore relief for taxpayers
Impact:
Tax deducted at source and tax collected at source has been reduced by 25 percent.
This will cover heads like contracts, interest earnings, rent, dividend from companies and commission of brokerages
This reduced tax liability will be available till March 31, 2021.
15. Measure
More tax relief for taxpayers
Impact:
Charitable trusts, non-corporate companies, cooperatives, professionals, proprietary companies, limited liability partnership companies etc have been allowed to file their tax returns by November 30, 2020 for the year 2019-20.
Vivad se Vishwas scheme has been extended to December 31, 2020. This will give more time to settle a lot of tax disputes.
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