Comments on Economic Stimulus Package (Part 1) Announced by Finance Minister on 13th May, 2020
- Hon. FM announced first part of stimulus package on Wed. of 5.94 lakh cr. in the form of loan guarantee, corpus fund, contribution to EPF and funds to non-bank lenders and power distribution companies. However, the bulk of the package is in the form of guarantee/ financial support and requires no spending on the part of Govt. except 2500 cr. support to business by contributing to EPF. The aim is to make the India “Aatmanirbhar”.
- This will not have adverse impact on fiscal deficit as guarantees are contingent liabilities payable only in case of default by the business houses in loan repayment
- Out of total package of 20 lac cr., package worth 9.74 lakh cr. has already been declared during Feb. – April so now stimulus package of around 4.50 lac cr. is expected to be announced in days to come
- Current vs. revised definition of MSME units described in below the table. The same is subject to amendment in MSME Act to be notified soon
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Scheme |
Amt. (Cr.) |
Who Funds |
Who will benefit & conditions |
How | |||||||||||||||||||||||||||||||||||||||
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Collateral free automatic loan to businesses, MSMEs |
3 lac |
Banks/ NBFC |
Businesses and SMEs can get upto 20% of o/s. credit on 29-2-20. Borrowers having 25 cr. o/s. and 100 cr. turnover are eligible till 31-10-2020. Loan to be repaid in 4 years with moratorium of 12 months with respect to principal repayment. No moratorium for interest payment |
In case of default, government will compensate to banks/NBFC so it is a kind of guarantee by govt. to banks/NBFC | |||||||||||||||||||||||||||||||||||||||
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Subordinated debt for stressed MSME |
20k |
Banks |
MSMEs which are NPA or having financial stress will be eligible. Bank will provide loans to promoters and then promoters can infuse the same to business as equity |
Govt. will provide a support of 4k cr. to Credit Guarantee Fund Trusts (CGTMSE). | |||||||||||||||||||||||||||||||||||||||
|
Fund of Fund to provide equity for MSMEs |
50k |
Govt., other investors |
Fund of funds will provide equity funding to MSME with growth potential and viability. This will provide equity support to MSMEs and encourage them to get listed on stock exchange |
Govt. will set-up Fund of Fund with corpus of 10k cr. with concept of mother fund and few daughter fund | |||||||||||||||||||||||||||||||||||||||
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Change in definition of MSMEs |
N.A. |
N.A. |
Investment limits in plant & machineries increased and additional criteria of turnover also included. Similar criteria for mfg. and service industries |
Necessary amendment will be made in MSME act to incorporate new limits | |||||||||||||||||||||||||||||||||||||||
|
Govt. to contribute to PF |
2.5k |
Govt. |
For companies with less than 100 employees where 90% of employees are drawing salary of less than 15k p.m., govt. will contribute to PF for both employee and employer for the months of March – August 2020 |
Govt. to contribute to EPF account of employee every month | |||||||||||||||||||||||||||||||||||||||
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Liquidity schemes for NBFC, MFI, Power distribution
|
1.2 lakh
|
Govt., PFC/REC
|
Investment will be made in primary and secondary market through investment in debt papers of NBFCs/HFCs/MFIs. PFC/REC to infuse 90k cr. to power distribution companies against their receivables |
This will provide liquidity support to NBFC, mutual funds and power distribution cos.
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TDS/TCS rate cut by 25%
|
50k
|
No funds needed
|
Rate of TDS/TCS reduced by 25% compared to prescribed rates for the payments made other than salary effective from 14-5-20 till 31-3-21. However in case TDS is short deducted, the receiver of the payment is required to pay advance tax on due dates based on income subject to tax. |
This will increase liquidity for recipient of payment especially in case where taxable income for the year 2020-21 tends to remain low | |||||||||||||||||||||||||||||||||||||||
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Partial Credit Guarantee Scheme
|
45k
|
Banks
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Existing Partial Credit Guarantee Schemes (PCGS) to be extended to cover credit risks against issue of bonds/CPs by NBFC, HFCs and MFIs. In case of loss, first 20% of loss shall be borne by Government
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NBFC, HFC and MFI will be able to raise fund from the market and do fresh lending to MSME and individuals. Govt. provided partial guarantee up to 20% of loss in case of loan repayment default | |||||||||||||||||||||||||||||||||||||||
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Disclaimer: The purpose of this blog is for education purpose and should not be construed as professional advice. Views expressed herein are the personal views of the author. Government or judicial authorities may or may not subscribe to the views expressed herein. Author of the blog is not liable for any implications arising out of actions taken based on the views expressed herein. | |||||||||||||||||||||||||||||||||||||||||||