FM releases COVID Relief Package to boost economy: A Liquidity Lifeline

Welcome Announcements by Finance Minister to boost COVID affected sectors: Healthcare, Tourism, Exports, Job Creation

In a bid to boost the economy battered by the second wave of COVID-19, Finance Minister Smt. Nirmala Sitharaman, on 28^th June, 2021, announced a relief package targeting healthcare, tourism, exports and job creation, among others.

The liquidity portion of the package, especially for small businesses, could indirectly revive the fortunes of larger industries they source from and help repair broken supply chains. The package also includes risk cover for merchandise and project exports, funds for healthcare, rural digital connectivity and power utilities, and support for businesses to hire new workers.

1. Rs 1.1 lakh crore loan guarantee scheme for COVID affected sectors

Health Sector: Rs. 50,000 crore

• Aimed at scaling up medical infrastructure targeting under-served areas
• Guarantee cover for expansion and new projects related to health/medical infrastructure in cities other than 8 metropolitan cities
• Guarantee coverage: 50% for expansion & 75% for new projects
• Maximum loan: Rs. 100 crore;
• Guarantee duration: Up to 3 years
• Interest rate capped at 7.95%

Other Sectors: Rs. 60,000 crore

• Interest rate capped at 8.25%

Commentary: The support given to the healthcare sector is encouraging and augurs well for a quick recovery of India’s economy. The private health sector has played a crucial role in facing the present crisis and helped save numerous lives. However, this period also saw hospitals in Tier 2 and Tier 3 cities face severe challenges that threatened their survival. These hospitals now have a lifeline in the form of Rs 50,000cr loan guarantee scheme with a cap on the interest rate. This will in turn also encourage the larger private sector healthcare groups to invest further in health infrastructure in the smaller cities, which in turn will ease access to quality healthcare, bringing world-class medical infrastructure to the doorstep of every common man.

2. Expansion of healthcare infrastructure

• Rs 23,220 crore has been earmarked for expansion of medical infrastructure for 1 year
• Special emphasis on child and paediatric care.
• To increase the number of ICU beds and enhance the availability of equipment and liquid medical oxygen (LMO)

Commentary: This additional outlay for public health with special emphasis on children’s health will go a long way in preparing us for the possible impending third wave.

3. Free visas, Loan for travel agencies

• Once issuance resumes, the first 5 lakh tourist visas will be issued free of charge (only once per tourist) till 31^st March, 2022. This incentive will cost the government around Rs 100 crore.
• A loan guarantee scheme for the tourism sector, which has been one of the worst-hit by the coronavirus pandemic
• The loan will be provided with 100% guarantee of up to Rs 10 lakh for travel agencies and Rs 1 lakh for regional tourist guides
• As many as 10,700 regional tourist guides will be eligible to avail this loan

Commentary: Much needed breathing space to the businesses in the Travel, Tourism & Hospitality industry that have been facing a liquidity crisis due to the pandemic.

4. ECLGS cap raised by Rs 1.5 lakh crore- Support to MSMEs

• Under the Emergency Credit Line Guarantee Scheme (ECLGS), collateral-free loans are given to MSMEs
• The cap of the ECLGS has been raised to Rs 4.5 lakh crore from the earlier Rs 3 lakh crore
• Since the ECLGS was announced as part of Aatmanirbhar Bharat package last year, a total of Rs 2.69 lakh crore has been disbursed under this scheme to 1.1 crore units

5. Credit guarantee scheme for Micro Finance Institutions

• Credit guarantee scheme to facilitate loans to 25 lakh persons through Micro-finance institutions (MFI)
• Interest rate on loans from banks to be capped at MCLR plus 2%
• Maximum loan tenure will be 3 years with maximum loan of Rs 1.25 lakh

Commentary: The government’s backing by guaranteeing commercial banks for their lending to NBFC-MFIs to lend to small borrowers will help financial support to such small borrowers and also enhance NBFCs capacity to lend.

6. Rs 33,000 crore for Export Insurance

• The National Export Insurance Account (NEIA), through EXIM Bank, facilitates cover for buyer’s credit to project exporters and borrowers with less creditworthiness.
• To provide additional corpus to the NEIA over 5 years to underwrite additional Rs. 33,000 crore of project exports
• To infuse equity in Export Credit Guarantee Corporation (ECGC) over 5 years to boost export insurance cover by Rs. 88,000 crore

7. Extension of Aatmanirbhar Bharat Rozgar Yojana- Wage Subsidy Scheme

• Aatmanirbhar Bharat Rozgar Yojana extended from June 30, 2021 till March 31, 2022
• The wage subsidy scheme aims to incentivize employers via EPFO to create fresh employment and focuses on beneficiaries with monthly wages less than Rs 15,000

Commentary: This move could also lead to an increase in the salary packages of new employees. This will be done by reducing the cost borne by the company with the government stepping in to take care of statutory EPF dues.

8. Other Measures: PPP projects, DISCOMs, BharatNet, Fertiliser subsidy, PMGKAY

• A new process is being adopted to ensure speedy clearance of public-private partnership projects.
• The government has also allocated Rs 3.03 lakh crore to revamp DISCOMs (state-owned power companies). This stimulus will enable DISCOMs to opt for ‘reform-based, result-linked’ power distribution through upgradation of existing systems and enhanced capacity.
• An additional Rs 19,041 crore has been earmarked for BharatNet, which aims to improve broadband connectivity to villages across the country.
• The Finance Ministry has also extended the tenure of Production Linked Incentive Schemes (PLIs) for large scale electronic manufacturing.
• The Nutrient Based Subsidy (NBS) for fertilizers has been increased to Rs 42,275 crore. An additional amount of Rs 14,775 crore will be provided to stakeholders, including for DAP (Di-ammonium Phosphate) and NPK-based complex fertilisers.
• The government will release 21 new varieties of climate-resilient crop varieties developed by the Indian Council of Agricultural Research (ICAR).
• The North Eastern Regional Agricultural Marketing Corporation (NERAMAC) will also be revived. A stimulus of Rs 77.45 crore has been earmarked for this purpose to enhance agriculture-related activities in the North East.
• Extension of the Pradhan Mantri Gareeb Kalyan Anna Yojana (PMGKAY) till November, 2021.

Press Release: https://taxguru.in/finance/govt-announces-stimulus-package-rs-628993-crore.html

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Disclaimer: This is for informative purposes only.

The author can be reached at cajaybohra@gmail.com