Economic Relief Package for COVID by GoI - Key Takeaways from Day 1 Briefing

In continuation to the announcement made by Hon'ble Prime Minister of India to infuse 20 Lakh crore (approximately 10 % of GDP) into the economy with a call for the Self-Reliant India Movement driven by bold reforms and need to support local producers, the Ministry of Finance made the first tranche of announcements comprising of fifteen key measures which account for allocation of approximately 6.40 Lakh Crores. The sectors under consideration in today's conference were the MSME, NBFCs, HFCs, Micro Finance Companies, Power, Construction, Real Estate, and the Direct Tax Segment. Out of fifteen announcements, six the majority of announcements were for the MSME sector which will be receiving a stimulus of 3.4 lakh crores. Discoms - in power sector liquidity infusion of 90,000 crores has been announced as an aid for companies only if they transfer benefits to the customers as well. For NBFCs, MFIs, and Housing Finance Companies 75000 crore worth of package has been announced. One should note that this stimulus is not the part of the budget presented in February 2020, nor the part of the infrastructure investment project that was announced prior to COVID-19. This package is specifically targetted as a rescue measure. The following section presents a brief pointwise summary of the announced measures:

MSMEs 1. Collateral- free Automatic Loans for Businesses, including MSMEs

• Emergency credit line for borrowers with up to Rs. 25 crore outstanding and Rs. 100 crore turnover with a 4-year interest capped loan tenor and a moratorium of 12 months on principal. • There will be a 100% credit guarantee cover to Banks and NBFCs on Principal interest and no guarantee fee or fresh collateral. • This scheme can be availed up to October 31, 2020. 45 lakh units are expected to benefit from this. 2. Rs. 20000 crores Subordinate debt for Stressed MSMEs

• This is for the Stressed MSME units which require equity support • only NPA or Stressed Units are eligible for this. • Credit GuranteeTrust for MSME(CGTMSE) will get Rs. 4000 crore support from the government • 2 lakh potential beneficiaries will be there

3. Rs. 50,000 crore equity infusion for SMEs through Funds of Funds

• For the MSMEs- doing viable business and have growth potential but need hand-holding.

• MSMEs encouraged to get listed on the main board of stock exchanges

• 
  

4. New Definition of MSMEs: Turnover and Investment Based Criteria

• The existing classification of manufacturing and service enterprises has been amalgamated as one under the Manufacturing & Services head with revised minimum and maximum caps.

5. Disallowing global tenders up to Rs 200 Crore

• Disallowing global tenders up to Rs 200 Crore in government procurement as the majority of MSMEs face unfair competition in international markets This will augment initiatives like the Make in India
  

6. Other interventions • E-market linkage for MSMEs in post COVID period - for businesses to find markets easily online • CPSEs and GoI – within next 45 days, all receivables will be cleared for MSMEs II. Taxation 1. Rs. 2500 crore EPF support for business & Workers for 3 more months • Provides Liquidity relief for all EPF establishments and 72.22 lakh potential beneficiaries • For businesses facing financial stress and could get back to work • Support extended by another 3 months to salary months of June, July, and August 2020. 2. Liquidity relief for employer and employees with an influx of Rs 6750 Crores

• Statutory PF contribution of both employers and employees will be reduced to 10 percent from the current 12 percent except for Public Sector Units (PSUs) and the central units

3. Rs. 50,000 crores liquidity via TDS/TCS rate reduction • 25 percent reduction on existing rates 4. Other tax measures • All pending funds to charitable trusts and non- corporate business & professions, to be issued immediately 5. Extension of Deadlines

• Due date to file income tax returns, tax audit, direct tax assessment extended to November 30, October 31, December 31 respectively.

III.Rs. 30,000 crore Special Liquidity Scheme for NBFCS, HFCs, Microfinance corporations: • For institutions facing difficulty to raise money in debt markets • Primary and Secondary market transactions in investment-grade debt paper of these institutions • Will supplement interventions made by RBI • Securities fully guaranteed by the GoI • Will ensure smooth liquidity and restore the confidence of non-banking institutions IV. NBFCS – 45000 liquidity infusion through existing Partial Credit Guarantee Scheme • For non-banking institutions with low credit rating • To cover borrowings like primary issuance of bonds/commercial papers (CPs) which reflect on the liability side of the balance sheet of these entities • Even below AA paper along with unrated paper eligible for investment V. Power Sector: Rs. 90,000 crore liquidity injection for DISCOMs

• One-time help for DISCOMs struggling with poor cash flows and revenue structure. • Current payables of DISCOMs stand at Rs.94,000 crore • Loans to be given against state guarantees and rebate will be subject to the condition if the benefits are being passed on to the final consumers as well VI. Construction Sector : Contractors: Railways, roads, central publics work, etc. • Extension of 6 months without any cost to contractors so that they can comply with contract conditions, completion of works & intermediate milestones. • 6 months extension for PPP projects • To ensure liquidity, bank Guarantees to be released for partially completed contracts VI. Real Estate Extension of Registration and Completion Date for Projects Under RERA • To distress real estate developers • Urban development bodies – can use forced measure clause under RERA • Extend registration and compliance by 6 months for all projects expiring on or after 25th March 2020 • Issuance of fresh "Project Registration Certificates" With a number of cases going up every day, uncertainty looms over the period of lockdown and the extent of relaxation that can be provided to get the economy my humming back to normal. The measures announced by the GoI today broadly address the liquidity issues being faced by MSMEs, NBFCs, HFCs, MFIs along with the extension in compliance period for businesses, construction sector. Also, the interests of taxpayers have been considered. As a major change in order to answer the debated issue of defining MSMEs, the government has come up with a classification that amalgamates investments and the turnover under a single head of manufacturing & services. In the upcoming conferences by the Ministry of Finance(MoF), it would be interesting to see what the government has in its basket to offer for the informal sector, especially the migrants and the marginal daily wagers. Concerns loom around the breach of Fiscal Deficit (FD) with questions over what would be the justifiable limit of the breach and to what extent (Fiscal Responsibility and Budget Management Act) FRBM Act can be amended. On the part of sources through which the government will be financing this package, so far the response has been related to borrowings program, that remained unanswered in today's conference. The central government and the RBI have been proactive in responding to emerging developments from COVID-19. As the economic activity continues to remain depressed with businesses fearing the risk of shut down, non-banking institutions facing a liquidity crunch, Construction, and allied sectors facing compliance issues, the measures announced today will restore the confidence among these stakeholders to some extent. A more clear picture of what stance the different agents in the economy take on these relief measures will reflect only after the briefing process by government gets over this week. For the outcome part, one will have to keep track of how the current COVID rescue measures shape the trajectory of active cases in India