The Rs 5.94 lakh crore package seeks to ensure credit and liquidity for the sectors that are among the worst hit by the Covid-19 crisis. The bulk of the package is in the form of guarantees that require no immediate allocation from the budget, implying limited impact on the fiscal deficit and more room for support to other sectors. The direct immediate support from the budget — guarantees are contingent liabilities payable only on default — is less than Rs 50,000 crore.
“Essentially, this is to spur growth to build a very self-reliant India and that’s why this initiative is called Atmanirbhar Bharat Abhiyan,” Sitharaman said on Wednesday, adding that the stimulus programme has been prepared after “wide and deep” consultations.
Including the measures announced by the government and the Reserve Bank of India earlier, the latest measures add up to Rs 12.88 lakh crore, leaving a balance of Rs 7.12 lakh crore. Additional measures will be announced over the next few days and are likely to focus on labourers, farmers, the middle class and industry.
“The policy bouquet unveiled by the government is well-structured, suitably targeted, within reasonable fiscal limits but still having the maximum impact,” said SBI chairman Rajnish Kumar. The package includes a government guarantee for Rs 3 lakh crore collateralfree loans to small businesses, a Rs 20,000 crore debt fund for the stressed ones and a Rs 50,000 crore fund to provide equity support.
Nonbanking finance companies (NBFCs) will get a Rs 30,000 crore special liquidity fund and Rs 45,000 crore partial credit guarantee scheme that will apply to those rated AA and below and even unrated paper, enabling them to borrow more from the market. Power distribution companies will get Rs 90,000 crore liquidity against receivables from state-owned Power Finance Corp. and Rural Electrification Corp. allowing them to pay dues to power producers.
The provident fund contribution has been cut to 10% for both employer and employees, adding up to Rs 6,750 crore in freed-up liquidity, from 12%. The government has also extended the 24% provident fund contribution scheme by another three months, providing Rs 2,500 crore support to 367,000 establishments and covering 7.2 million employees.
The Rs 3 lakh crore loan guarantee scheme is open until October 31 and will benefit 4.5 million units, the finance minister said. Industry said the stimulus was well targeted. It will meet the immediate as well as longer-term requirements of sectors in distress, said Confederation of Indian Industry director general Chandrajit Banerjee.
“The measures for NBFCs, HFCs (housing finance companies) and MFIs (microfinance institutions) inject direct liquidity to where it is required most, and will enable them to support their borrowers through a period of cash flow stress,” said N Venkatram, CEO Deloitte India.
The finance minister announced a change in the definition of MSMEs, raising the investment threshold and adding turnover as a criterion, which will allow them to grow in size without fear of losing incentives. To encourage the sourcing of local products, all government tenders up to Rs 200 crore will only be floated locally.
“Changing definition of MSMEs will be a game changer and enable them to grow and expand. This should get the credit cycle moving and, hopefully the risk aversion of banks eliminated,” said NITI Aayog CEO Amitabh Kant. The “foundation has been laid for a new MSME sector at the core of our future self-reliant economy. Directing huge capital inflows into MSME is the first step”, minister for MSMEs Nitin Gadkari said in a tweet. The government has also allowed contractors for the railways, highways and other ministries an additional six months to complete projects or supply goods or services without any penalty. Bank guarantees offered by them will also be released to the extent of project completion to improve cash flow.
In order to leave more cash in the hands of taxpayers, the rates of tax deduction at source (TDS) for nonsalaried specified payments made to residents and tax collection at source (TCS) for specified receipts will be reduced by 25%. Payments for contracts, professional fees, interest, rent, dividend, commission, brokerage, etc. will be eligible for this reduced rate of TDS, which will be applicable for the remaining part of FY21from May 14. TDS and TCS already paid will be restored when tax for the full year is computed.
Further, the due date of all I-T returns for FY20 will be extended to November 30 from July 31and October 31. The tax audit deadline has also been extended by a month to October 31. Under the Vivad se Vishwas scheme, the deadline for making payments without additional charges will be extended to December 31.