The Government stimulus is a mixture of long-awaited economic reforms and simplifying laws to make India an attractive investment nation. The govt initiatives could have near, medium and long-term implications in moving India to the targeted $5Tn in the next couple of years. But can it help a revival of hopes, sentiments and lead the migrants back to their workplaces?
Let us see what Govt’s actual and immediate infusion of liquidity into the system:
Part 1 of the Stimulus
1. EPF Contribution paid by the Government for companies having up to 100 employees, 90% drawing salary up to ₹.15,000 per month – Cost to Govt ₹.2800 Cr
2. Income tax refunds – no cost to the Govt.
3. Automatic Collateral free loan to businesses, ₹.3,00,000 crores- one-year moratorium and four years payback. The govt may at most have a 20% risk exposure for defaults, if at all. The banks bear the rest risks. Interest subsidy will be borne by the Govt but will not help the liquidity.
4. Subordinate debt to MSMEs- Under this scheme, the Government will support the Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE) to the tune of ₹4,000 crore, which is 20% of the total amount the Government is expecting the banks to disburse -the Cost to Govt ₹.4000 crores.
5. Equity infusions are not a cost to the govt but an investment. (SIDBI had started a similar corpus with ₹.10000 crores corpus in 2016 to extend support to MSME start-ups. The Fund of Funds had committed ₹3,798 crores in 53 AIFs and the industry availing merely a third ar ₹3,582 crores.
6. TDS Rate deduction has no cost to Government
7. Interest subvention on Mudra loans- Cost to Govt ₹.1500 crores
Part 2 of the Stimulus – People welfare schemes
1. PM Garib Kalyan Package- Food and cash in Jan Dhan Account cost to Govt ₹.1,70,000 crores
2. PM Kisan Yojana- cash to farmers @ Rs.2000. Cost to Govt. ₹. 17400 Crores
3. Emergency Health Response Package for COVID tests ₹. 15000 crores
4. Kisan Card Loan ₹. 2,25,000 – no cost to the Government
5. Loan to Farmers ₹. 86,600 – No cost to the Government
6. Support to Migrant workers – ₹.14,502 cores cost to the Government
7. Rural Infra ₹.4200 crore is a business proposal to Pvt industry. Govt would incentivise and has no cost.
8. Assistance to Street Vendors Cost to the Government ₹.5000 crores
9. CAMPA funds Cost to the Govt. ₹. 6000 crores
10. Emergency funds to farmers- Cost to the Govt ₹.30,000 crores
11. Housing Loan Interest subsidy – Cost to the Govt ₹.70000 crores.
Part 3- Govt Assistance to Banks and Financial Institutions:
1. Reduction in CRR- ₹.1,37,000 Crores – No Cost to the Government
2.Targeted Long term Repo Ops (TLTRO) & MSF to help Financial Institutions & Mutual Funds ₹.2,87,050 crores. No cost to the Government
3. Special Refinance and Liquidity Facility – ₹.1,30,000 crores- No cost to the Government
4. Partial Credit Guarantee- ₹. 45,000 crores – No cost to the Government
5. Payment to Discoms – ₹.90000 crores – this amount will be funded by two PSUs, the Power Finance Corporation and the Rural Electrification Corporation to assist the discoms clear their dues with power generation and transmission companies. The respective state governments should guarantee these loans to the discoms. No cost to the Government.
6.Working capital for Agri industry- ₹.6700 crores – No Cost to the Government
7. Refinancing NABARD – ₹. 29,500 crores – No cost to the Government
Part 4
Viability Gap Funding and MGNREGS Cost to the Government ₹.48,100 crores
Summary
Total of Part 1 until 5 – ₹. 20,97,053 ($279 Bn) or 9.5% of GDP
Actual immediate Cost to Govt. as Cash Outflow or subsidies: ₹.3,84,302 crores ($ 51 Bn) 1.74% of GDP
Loan and Guarantees, where there is no cash outflow ₹.17,12,751 crores ($ 228 Bn)
Immediate Cash infusion % of total 18.325% of the Stimulus
I guess more money into the system by some daring acts like suspending income tax on MSMEs and individuals for a year, or thrusting cash with poor to sustain a dignified living for 3-6 months may have produced a much quicker revival. One can understand the plight of the Government in their restrained response because a misstep could prove costly.
It may require exemplary courage and out of box thinking to take on the Covid challenge and convert it into an opportunity. The stimuli do not reflect a quick recovery mode to our economy.
Sampath Kumar
Intrépide Voix
