Context: Recently, the Union Finance Minister announced liquidity measures for businesses, especially Micro, Small and Medium enterprises (MSMEs), as part of the first tranche of Atmanirbhar Bharat Abhiyan.
Key Points

• The 16 specific announcements announced in the first tranche cut across sectors that range from MSME and NBFCs to real estate and power distribution and the salaried.
• The overarching theme was that of infusing liquidity, engineering a pass-through effect that ultimately puts more disposable funds in the hands of both entrepreneurs and employees.

For employees/ tax payers

• For salaried workers and taxpayers, relief has been provided in the form of an extended deadline for income tax returns for the financial year 2019-20.
• The due date has been pushed to November 30, 2020.
• The rates of Tax Deduction at Source (TDS) and Tax Collection at Source (TCS) have been cut by 25% for the next year.
• Employee Provident Fund (EPF) support, provided to low-income organised workers in small units under the PMGKY is being extended for another three months.
• It is expected to provide liquidity relief of Rs 2500 crore.
• Statutory Provident Fund (PF) payments have been reduced from 12% to 10% for both employers and employees for the next three months.

For MSMEs

• The Ministry of Micro, Small and Medium Enterprises (MSMEs) will get the bulk of the funding.
• The Rs3 lakh crore emergency credit line announced will ensure that 45 lakh units will have access to working capital to resume business activity and safeguard jobs.
• For two lakh MSMEs which are stressed or considered non-performing assets, the Centre will facilitate provision of Rs20,000 crore as subordinate debt.
• A Rs 50,000 crore equity infusion is also planned, through an MSME fund of funds with a corpus of Rs 10,000 crore.
• The definition of an MSME is being expanded to allow for higher investment limits and the introduction of turnover-based criteria.
• In a bid to fulfil the Prime Minister’s vision of a self-reliant or “atmanirbhar” India, global tenders will not be allowed for government procurement up to Rs 200 crore.
• The government and central public sector enterprises will release all funds due to MSMEs within 45 days.

For NBFCs

• The government announced Rs 30,000 crore of a special liquidity scheme, under which investment will be made in investment grade debt papers of these institutions.
• If a government entity directly buys debt papers of these entities, then it would provide major relief.
• The contours of this scheme are yet to be announced.
• The government has also extended the partial credit guarantee scheme — under which it guarantees 20 per cent of the first loss to the lenders — NBFCs, HFCs and MFIs with low credit rating.
• This scheme is estimated to result in liquidity injection of Rs 45,000 crore in debt papers that are rated AA or lower and even unrated securities issued by such entities, including the Micro Finance Institutions (MFIs).
• It is believed that it will improve confidence in the financial system and help institutions raise funds in the debt market, and reduce risk aversion of banks.

For DISCOMs

• As these companies are facing an unprecedented cash flow crisis and thus will receive Rs 90,000 crore liquidity injection.
• These funds will be then given to DISCOMs against state government guarantees for the sole purpose of discharging their liabilities.
• The idea is to clear the payment backlog with concessional loans guaranteed by the respective state governments.

For Real Estate

• The Union Housing and Urban Affairs Ministry will advise States and Union Territories and their regulatory authorities to extend the registration and completion date of real estate projects by six months.
• Six-month extension and treatment of the COVID-19 pandemic as an event of force majeure, like a natural calamity, under the Real Estate (Regulation and Development) Act would de-stress the sector and ensure completion of projects.

Overall Implications of Economic Stimulus

• Concerns have been expressed that risk-averse bankers may not extend the loan benefits to all MSMEs despite the government’s 100% credit guarantee.
• Criticisms have been raised with respect to the economic package not including measures for market development to encourage public spending, employment generation or development of health infrastructure to combat the post COVID situation.
• It is argued that the government must spend more and should not be unduly bothered about running up a high fiscal deficit. Suggestions have been made that the government could monetise part of the deficit if it reached a worrying level.
• The measures announced during the first tranche of the economic stimulus focuses majorly on supply side measures, aimed at activating businesses in the MSME, real estate, NBFC sectors.
• In general, stimulus measures are aimed at boosting demand either by government spending on its own account or increasing disposable incomes of households through cash transfers or tax concessions. Therefore, Indian economy needs both supply and demand side measures for the revival.