India is under lockdown since March 24, 2020 due to outbreak of Covid-19. It caused serious impact on the economy of our country. The International Monetary Fund (IMF) slashed Gross Domestic Product (GDP) growth estimate of India for the Financial Year 2020-2021 to 1.9% from 5.8% estimated in January, 2020. In April, 2020 IMF said that the world output will shrink by 3% in 2020 due to Covid-19 pandemic.
Economy of our country is suffering most during this period of prolonged lockdown since independence. The fear of mass unemployment and consequential hardship is looming large.
Under these circumstances, measures must have to be taken to revive the economy. Economic growth of a country depends on the growth of following two factors:
Consumption; and
Investment.
So, to revive the economy of a country steps must have to be taken to boost up consumption and investment.
Boosted up consumption will create demand for goods and services. Providers of goods and services will increase their production and make investments to meet the increased demand. New investments will create new employments resulting in new demands which will again generate fresh investments and this process will go on causing growth in the economy.
On the other hand, investment creates demand for capital goods and also creates employments. This creation of employments again creates demands and to meet the demands from new employments new investments are made which further generate employments. This process will continue causing growth in the economy.
Economy of the country has almost come to a standstill. So, for revival of the economy these two factors of growth have to be taken care of. But boosting up of consumption needs money in the hands of common people to purchase goods and services. In case of investments, entrepreneurs also need deployable funds to make new investments.
Our beloved Prime Minister Shri Narendra Damodardas Modi, through his call for ‘Self Reliant India Movement’ (Atmanirbhar Bharat) has rightly addressed these issues. He has announced a special economic and comprehensive package of Rs. 20 lakh crore (equivalent to 10% of our GDP) towards these twin goals of providing liquidity in the hands of common people (so that they can purchase goods and services) and entrepreneurs (so that they can continue their businesses and make new investments) to revive consumptions and investments. He has identified five pillars of Atmanirbhar Bharat i. e. Economy, Infrastructure, System, Vibrant Demography and Demand.
Our beloved Prime Minister announced a bunch of measures to address this issue of revival of the economy. Some of them are enumerated below:
20 crore women holders of Jan Dhan Bank Accounts will get Rs. 500 per month for the next 3 months.
MNREGA wage has been increased to Rs. 202 per day from Rs. 182 per day. It will benefit 13.62 crore families.
Ex-gratia of Rs. 1,000 will be paid to 3 crore poor senior citizens, poor widows and poor divyangs (especially abled persons).
Front-loaded Rs. 2,000 paid to farmers under the existing Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) scheme to benefit 8.7 crore farmers.
For the next three months 24% of monthly wages will be credited to the Provident Fund Accounts of workers earning less than Rs. 15,000/- per month and employed in businesses employing less than 100 workers.
Five crore workers registered under Employee Provident Fund (EPF) will get 75% non-refundable loans from their EPF Accounts to the extent of 75% of the amount standing credit to their accounts or three months wages, whichever is lower.
Eligibility of collateral free lending to Women Self Help Groups (supporting 6.85 crore households) has been increased from Rs. 10 lakh to Rs. 20 lakh.
Income Tax Refunds up to Rs. 5 lakh benefitting 14 lakh taxpayers and Special Refund and Drawback Disposal Drive (refunds under the Indirect Taxes and export incentives) have been implemented. The two measures released Rs. 18,000 crore in the hands of taxpayers.
The prescribed rates of Tax Deducted at Source (TDS)/Tax Collection at Source (TCS) under the Income Tax Act, 1961 have been reduced by 25% (except a few). This will generate liquidity of Rs. 50,000 crore in the hands of taxpayers.
EPF contributions of employers @ 12% and employees @ 12% for eligible establishments were paid by the Government for the months of March, April and May, 2020. This assistance has been extended for another three months, i. e. for the months of June, July and August, 2020. This will provide much needed liquidity of Rs. 2,500 crore to 3.67 lakh eligible establishments and 72.22 lakh employees.
EPF contributions of both employers and employees (not covered under the above scheme) for the next three months have been reduced from 12% to 10% (however Central and State Public Sector Undertakings will continue 12% contributions). This will also provide much needed liquidity of Rs. 6,750 crore in the hands of around 6.50 lakh establishments and around 4.3 crore employees.
Micro, Small and Medium Enterprises (MSMEs) employ about 11 crore persons and contribute to about 45% of total manufacturing output, 40% of exports and almost 30% of GDP of our country. This sector is affected most due to Covid-19 outbreak. Several measures have been announced by our beloved Prime Minister so that they can continue their businesses and retain their employees and also can make new investments. Out of his announcements, the major items are provided below:
Definitions of MSMEs have been revised. To be eligible to be identified as a Micro or Small or Medium enterprise the criteria specified beforehand have been changed. This will expand the number of units to be covered as MSMEs. Hence, much more units will be eligible for the benefits announced.
Rs. 3 lakh crore collateral free automatic loans (with a moratorium of 12 months on repayment of principal and cap on interest) to MSMEs and other specified businesses up to 20% of their total outstanding credit as on February 29, 2020. This scheme will enable around 45 lakh units to resume businesses and safeguard jobs.
Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) will be provided a support of Rs. 4,000 crore by the Government. CGTMSE will in turn provide partial credit guarantee support to the Banks for lending to the promoters of functioning MSMEs which are either stressed or declared as Non Performing Assets (NPAs). Promoters of MSMEs will then be able to infuse the funds borrowed from Banks in their units as Equity Share Capital. Through this process Rs. 20,000 crore will be provided as subordinate debt benefitting two lakh MSMEs.
A Fund of Funds with few downstream funds will be set up. It is expected that they will provide the much needed Equity Share Capital funding of Rs. 50,000 crore to the MSMEs.
Global tendering systems will be discarded for Government procurements to the extent of Rs. 200 crore. This will assist the MSMEs to boost up their businesses.
Measures to be undertaken by the Reserve Bank of India (RBI) to increase liquidity in the system include the following:
Reduction of Cash Reserve Ratio (CRR) of Banks resulting into enhanced liquidity of Rs. 1, 37,000 crore in their hands. This will increase the lending power of the Banks.
Fresh investment of Rs. 1, 00,050 crore in the investment grade bonds, commercial papers and non-convertible debentures of corporates.
Fresh investment of Rs. 50,000 crore in the investment grade bonds, commercial papers and non-convertible debentures of Non-Banking Financial Companies (NBFCs) and Micro finance Institutions (MFIs).
Limit for borrowing overnight of the Banks has increased. This will provide additional liquidity of Rs. 1, 37,000 crore in the hands of Banks resulting in increase in their financing powers.
Special refinance facilities of Rs. 50,000 crore to National Bank for Agriculture and Rural Development (NABARD), Small Industries Development Bank of India (SIDBI) and National Housing Bank (NHB). Resultantly their powers of financing will increase.
Opening of Special Liquidity Facility (SLF) of Rs. 50,000 crore for mutual funds to ease their liquidity pressures.
Moratorium on payment of instalments on term loans and payment of interests on working capital loans for three months.
Availing of working capital loans has been eased by reducing the margins to be provided.
Measures undertaken to support and boost up Agriculture, Dairy, Fishery, Herbal (Medicinal Plant) Cultivation and Beekeeping include the following:
A fund will be created with an outlay of Rs. 1 lakh crore for funding Agriculture Infrastructure Projects (to develop cold chains and post-harvest management infrastructure) at farm-gates and aggregation points.
Minimum Support Price (MSP) purchases of more than Rs. 74,300 crore during lockdown period.
Transfer of fund of Rs. 18,700 crore to PM-KISAN.
Claim payments of Rs. 6,400 crore under Prime Minister Fasal Bima Yojana.
Rs. 500 crore will be released under Operation Green to cover all fruit and vegetable products (at present existing only for tomato, onion and potato). The fund will be utilised for providing 50% subsidy on storage facilities including cold storages and also for providing 50% subsidy on transportation from surplus to deficit areas.
Facilitative legal framework will be created to enable farmers for engaging with processors, aggregators, large retailers, exporters etc. so that they can fetch better prices for their products.
Enactment of a Central Law enabling better price discovery, barrier free interstate trade and also e-trading of agricultural produce of the farmers.
Essential Commodities Act will be amended so as to enable farmers to have better price realisation.
Animal Husbandry Infrastructure Development Fund will be set up with an outlay of Rs. 15,000 crore to support investment in dairy processing and cattle feed infrastructure.
During lockdown period demand for milk has reduced by 20% – 25%. A scheme will be launched to provide interest subvention @ 2% per annum to dairy co-operatives for the year 2020-2021. Additional 2% per annum interest subvention will be provided on prompt payment. This will provide Rs. 5,000/- crore additional liquidity to 2 crore farmers.
National Animal Disease Control Programme has been launched with an outlay of Rs. 13,343 crore.
Pradhan Mantri Matsya Sampada Yojana (PMMSY) will be launched with an outlay of Rs. 20,000 crore for development of marine and inland fisheries. In the PMMSY Rs. 11,000 crore has been identified for activities in marine, inland fisheries and aquaculture and Rs. 9,000 for infrastructure development. It is expected to provide more than 55 lakh employments and will double our export to Rs. 1, 00,000 crore.
For promotion of herbal cultivation Rs. 4,000 crore has been allocated. This will make possible 10, 00,000 hectare of additional land to be covered under herbal cultivation in the next two years. This will lead to Rs. 5,000 crore income generation for farmers.
Rs. 500 crore will be provided to develop infrastructure for beekeeping, like setting up of beekeeping development centres, collection, marketing and storage of honey etc. This will increase income of 2 lakh beekeepers.
Rs. 90,000 crore will be provided to the power distribution companies to boost up their cash inflows and also to meet their dues to power generation and transmission companies.
Rs. 30,000 crore Special Liquidity Scheme for making investments in investment grade debt papers of NBFCs/Housing Finance Companies (HFCs)/MFIs. This will support them with much needed liquidity.
Partial Credit Guarantee Scheme will be extended to cover borrowings of NBFCs/HFCs/MFIs with poor credit ratings. This will result in liquidity of Rs. 45,000 crore in their hands. In that case such entities will be able to make fresh lending to MSMEs and individuals.
Extended the housing loan interest subsidy scheme to people with annual income of Rs. 6 – 18 lakh. This will cost Rs. 70,000 crore to the Government.
5 kg. grains and 1 kg. chana per person will be provided free for two months to around 8 crore migrant workers having no ration card and outside the ambit of National Food Security Act. This will cost Rs. 3,500 crore to the Government.
Working Capital Loan of Rs. 10,000 each will be given to a target of around 50 lakh street vendors. In this way Rs. 5, 000 crore will be disbursed to them.
A new scheme will be launched with an outlay of Rs. 10,000 crore to implement Prime Minister’s vision of ‘Vocal for Local with Global outreach’ by assisting 2 lakh Micro Food Enterprises (MFEs) to improve their health and safety standards, to integrate them with retail markets and to enhance their incomes.
Apart from the above, the reliefs announced include (a) benefits under the Pradhan Mantri Garib Kalyan Package, like insurance cover of Rs. 50 lakh per health worker, over and above the monthly quota free distribution of 5 kg. food grains per person and 1 kg. pulse per household to 80 crore poor people for the next 3 months covered under National Food Security Act (NFSA), free distribution of gas cylinders to 8 crore poor families for the next three months, etc.; (b) Rs. 15,000 crore has been provided for Emergency Health Response Package for Covid cost; (c) relaxations from statutory compliances under the Income Tax Act, 1961, Goods & Services Tax Act, 2017 & Companies Act, 2013 have been granted; (d) extension of registration and completion dates of real estate projects under the Real Estate Regulatory Authority (RERA) has been allowed benefitting around 40,000 projects; (e) structural reforms have been announced for eight sectors including defence production, mineral, coal, civil aviation, power distribution and atomic energy to attract investments; and (f) borrowing limits of states have been increased by an additional amount of Rs. 4.28 lakh crore.
The above mentioned measures have been well targeted towards revival of the economy through providing liquidity in the hands of common people and entrepreneurs to boost up consumptions and investments. India is confident enough that it will navigate successfully through this difficult period under the strong and able leadership of our beloved Prime Minister Shri Narendra Damodardas Modi.
Dr. Somnath Ghosh
(Practicing Chartered Accountant and Guest Faculty, Calcutta University)