Last evening the Prime Minister announced a consolidated package of₹20 Lakh Crore as a COVID stimulus and to make India self-reliant. The main objective is to promote local business in the background of a Pandemic that may not leave us anytime soon. Along with the stimulus the PM also announced a continuation of the lockdown. However, Lockdown 4.0 will have a different set of guidelines to be announced on May 18th. A part of the stimulus package has already been implemented through the decisions of the RBI to ease liquidity and the ₹1.70 lakhs crore package announced by the Finance Minister on March 27th. The total of these comes to 4.80% of GDP or approximately ₹9.74 lakh Crores. The four cornerstones of the package are Land, Labor, Liquidity and Laws. The first tranche of measures was announced today by the Finance Minister whilemore tranches are expected over the next few days.
Last evening the Prime Minister announced a consolidated package of₹20 Lakh Crore as a COVID stimulus and to make India self-reliant. The main objective is to promote local business in the background of a Pandemic that may not leave us anytime soon. Along with the stimulus the PM also announced a continuation of the lockdown. However, Lockdown 4.0 will have a different set of guidelines to be announced on May 18th. A part of the stimulus package has already been implemented through the decisions of the RBI to ease liquidity and the ₹1.70 lakhs crore package announced by the Finance Minister on March 27th. The total of these comes to 4.80% of GDP or approximately ₹9.74 lakh Crores. The four cornerstones of the package are Land, Labor, Liquidity and Laws. The first tranche of measures was announced today by the Finance Minister while more tranches are expected over the next few days.
The major thrust of today’s announcements was on MSMEs. The change in definition will help many units to expand without losing the MSME tag. The new definition of MSME based on investment as well as turnover will not only benefit this sector but also provided clarity in the form of a long awaited definition clause. The manufacturing and services based MSMEs will now have the same benefits The downside here is that MSME benefit is extended to only up to ₹100 crore turnover which was previously ₹250 crores.
Stressed and NPA units will receive some much needed backing and the loans to standard units will see them through the pandemic induced shortage in working capital. The proposal for infusion of equity into viable MSME units is laudable and the “no global tenders” up to ₹200 Crores of procurement is also a step in the right direction given the focus on a “Self-Reliant India”. An E-market linkage will provide a digital platform for the MSMEs to sell their wares in the absence of a Pandemic induced closure of trade fairs and exhibitions across the world.
The special liquidity scheme of ₹30,000 crores for NBFC/HFC and MFIs will help to raise money in debt market and investment will be made in both primary and secondary market transactions in investment grade debt paper of NBFCs, HFCs and MFIs which will create substantial confidence in the market. Similarly, the announcement of ₹45,000 cr infusion through a partial credit guarantee scheme will enable liquidity to NBFC sectors. It is hoped that the measures announced for NBFCs, including guarantees offered by the Government of India will ultimately trickle down to the MSMEs as the NBFCs and MFIs cater mainly to MSMEs.
The Discoms stand to benefit with a fairly substantial injection of liquidity and clearance of all their receivables. Again, whether the government’s expectation that this benefit be passed further down will materialize or not, remains to be seen. The Real Estate Sector will heave a sigh of relief with the “Force Majeure” clause application being allowed for the Pandemic. An extension of up to 6 months for registration and completion will definitely help them in terms of timelines especially in the light of the move of migrant labor and possible delays in their return. Government contractors too have been offered similar relief from GOI agencies such as Railways, Highway Authorities etc.
On the direct tax front TDS and TCS rates have been reduced by 25% on non-salary payments to residents and this is expected to provide more liquidity support especially to the services sector. The due date for filing for tax audit cases stands extended up to 31st October and for all others is up to 30th November. The due date for completing assessment has been extended from 30th Sep to 31st Dec. The tax dispute resolutions scheme of Vivad Se Vishwas stands extended till 31st December. The interesting announcement is that all pending refunds to non-corporates are to be issued immediately which will help taxpayers get their own outstanding money from the Government. Extension of due dates will enable better compliance.
The reduction in the EPF rate will offer only minimal relief to the common man though it might translate into better cash flows for employers. It remains to be seen whether further tranches offer more to the salaried class. However, it can reasonably be expected that next tranches will include fiscal measures that will benefit the downtrodden and displaced such as migrant workers.
India remains the largest economy next only to USA, China, UK, Japan and Germany but the per capita income is low. Given the lack of abundant financial resources, the government is attempting a delicate juggling act trying to meet various sectoral demands while maintaining financial discipline in these hard times. The first tranche indicates a good step in this direction.
Gist of Key announcements by FM on 13th May 2020
MSME:
1. ₹3 lakh crore collateral free automatic loan facility with 100% credit guarantee cover to Banks and NBFCs on principal and interest. Emergency credit line to MSMEs from banks and NBFCs up to 20% of the entire outstanding credit as on 29.02.2020. To help 45 Lakh units.
2. Provision of ₹20,000 Crore as subordinate debt.
3. ₹50,000 crore of equity infusion for MSMEs through Fund of Funds to MSMEs with growth potential and viability.
4. Redefinition of MSMEs based on investment and turnover criterion.
5. Global tenders to be disallowed in government procurement up to ₹200 crores.
6. E-market linkages for MSMEs to be promoted. Fintech will be used to enhance transaction-based lending using data generated by the e-marketplace.
NBFCs/HFCs/MFIs:
7. ₹30,000 crore special liquidity investment scheme. Investments to be made in primary and secondary market transactions in investment grade debt papers of NBFCs/HFCs/MFIs. Securities to be fully guaranteed by GoI.
8. ₹45,000 crore worth of Partial Guarantee Scheme 2.0- AA rated papers and below and unrated papers to be eligible for investment. Existing scheme to be extended to cover primary issuance of Bonds/CPs. First 20% loss to be borne by GoI.
EPF:
9. ₹2,500 crore EPF support under the Pradhan Mantri Garib Kalyan Package (PMGKP) for eligible business extended by 3 months till August 2020.
10. Liquidity support of ₹6,750 crore – Statutory EPF contribution of both employer and employee will be reduced to 10% each from the existing 12% for the next 3 months.
Contractors:
11. Extension of up to 6 months to be provided by all Central Agencies to contractors. Covers obligations such as extension of concession period in PPP contracts. Government agencies to partially release bank guarantees (depending on the extent to which contracts are completed).
Real Estate:
12. Covid-19 can be treated as an event of force majeure under RERA. Extension of registration and completion date suo moto by 6 months for all registered projects expiring on or after 25th March 2020. Issue of fresh Project Registration Certificates automatically with revised timelines.
Income Tax:
13. All pending refunds to be issued immediately.
14. TDS and TCS rates for all non-salaried specified payments cut by 25% till March 31st 2021.
15. Due date for tax audit has been extended upto 31st October 2020 and for all the other return filings upto 30th November 2020.