PM Modi’s Economic Package: A Historic one and its Highlights

Prime Minister (PM) Modi has announced Rs 20 lakh crore (10% of GDP) economic package on Tuesday (May 12, 2020) to fight Coronavirus (Covid 19) economic crisis. The economic package announced by the PM is one of the largest in the world.

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This 20 Lakh crore package announced by Indian Prime Minister already includes earlier announced measures to save the lockdown battled economy like 1.7 lakh crore package of free food grains to poor and cash to poor women and elderly, announced in March, as well as the Reserve Bank's liquidity measures and interest rate cuts of ~Rs  6.3 lakh crore. Hence, it seems that additional Rs. 12lakh crore will be pumped into the economy to overcome financial loss due to Covid19 pandemic. The package will focus on land, labour, liquidity and laws. It will cater to various sections, including the cottage industry, MSMEs (Micro, Small and Medium Enterprises), labourers, middle class, and industries.

Finance Minister (FM) Nirmala Sitharaman on Wednesday shared the first tranche of the incremental measures. It included 15 relief measures with six aimed for MSME segment. The focus was on providing liquidity and credit support to ensure that MSMEs and Smaller NBFCs are able to sustain this tough time.

We are laying down these measures announced on May 13, 2020

1) Distressed MSMEs.

a) Rs. 3 lakh crore “guarantee” towards emergency working capital facility for businesses, including MSME availed from NBFCs and Banks:  This is an automatic collateral-free loans for borrowers with up to Rs. 25crore outstanding and Rs100crore turnover, having 4-year tenure with a 12-month moratorium on interest payment. The facility availed can be up to 20% of entire outstanding credit as on 29 Feb 2020. This will benefit 45 lakh units so that they can resume work and save jobs.

b) Rs. 20,000 crore subordinate debt for stressed MSMEs and Rs. 50,000 crore for “Viable” MSME to be used for Equity Infusion:  The GOI will facilitate provision of Rs. 20,000 crore as subordinate debt and will provide a support of Rs. 4,000 Crore to Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).

As for second part, a Fund of Fund with a corpus of Rs. 10,000 crore will be set up which will operate through a mother and few daughter funds. The setup will help these units increase capacity and help them list on Markets if they choose

2) Other Measures for MSMEs

a) New definitions: The investment limits have been revised upwards and additional criteria of turnover have been added. Micro units with investment till Rs 1 crore, turnover up to Rs 5 crore. Small units with investment till Rs 10 crore, turnover up to Rs. 50 crore. Medium units with investment till Rs 20 crore, turnover up to Rs 100 crore. At the same time, the distinction between manufacturing and services enterprises have been eliminated.

b) No global tenders for Government tenders (up to Rs. 200 Crore): To encourage MSMEs, global tenders will be not allowed in Government procurement tenders.

3) NBFC/HFC/MFIs

a) Rs. 30,000 crore special liquidity scheme: The Government will launch a special liquidity scheme where investments will be made in investment grade debt papers of NBFC/HFC/MFIs. The securities will be backed by GoI.

b) Rs. 45,000 crore Partial Credit Guarantee (PCG) scheme 2.0 for liabilities of NBFCs/MFIs: Existing PCG scheme is extended to cover the borrowings of lower rated NBFCs, HFCs and other MFIs. GoI will provide 20% first loss sovereign guarantee to Public Sector Banks.

4) EPF Support

a) Extending the EPF support: Payments (12% employer and 12% employee contribution) made in to EPF accounts of eligible establishments has been extended for another three months.

b) EPF Contribution reduced: EPF Contribution to be reduced for Employers and Employees to 10% from 12% for all establishments covered by EPFO for next three months

5) Liquidity injection for stressed DISCOMS: The government announced a Rs. 90,000 crore liquidity injection into fund-starved electricity distribution companies (discoms). State-owned Power Finance Corp. (PFC) and Rural Electrification Corp. (REC) will infuse the liquidity by raising Rs90,000 crore from the markets against the receivables of discoms. These funds will be then given to discoms against state government guarantees to discharge their liabilities.

6) Relief to Contractors: All central agencies like Railways, Ministry of Road Transport & Highways and CPWD will be providing extension of up to six months to complete projects. Also, the Government agencies will partially release bank guarantees to extent of completed work.

7) Relief to Real Estate Projects: State Governments are being advised to invoke the force majeure clause under RERA. The registration and completion date for all registered projects will be extended up to six months with further possible extension of three months based on the State’s situation.

8) Reduction in TDS /TCS: The TDS rates for all non-salaried payment to residents, and tax collected at source rate will be reduced by 25% of the specified rates for the remaining period of FY 20-21.