A day after Prime Minister Narendra Modi promised a Rs 20-lakh crore stimulus to support the rapidly sagging economy, Finance Minister Nirmala Sitharaman announced the first set of measures themed around ‘Atma Nirbhar Bharat’ or ‘Self-reliant India.’
The first tranche included revival and relief packages aimed at the micro, small and medium enterprises (MSMEs), power distribution companies (Discoms), the real estate sector, and the non-banking finance institutions (NBFCs). The Minister said she will announce more measures for economic revival and making India self-reliant over the next few days.
<strong>MSMEs</strong>
Sitharaman said a Rs 50,000-crore fund of funds will be set up which will help in equity infusion in MSMEs, which will help these firms to expand and tide over the current crisis arising in the wake of the spread of coronavirus. The definition of MSME has also be been changed to allow many of these firms to expand.
She said that several MSMEs were wary of growing and expanding due to fear of outgrowing the MSME umbrella and thereby losing benefits.
As per the new changes, businesses with investment of less than Rs 1 crore and turnover of Rs 5 crore would be classified as micro enterprises. Under the existing criteria, a company with investment of less than Rs 25 lakh in the manufacturing sector and less than Rs 10 lakh in the services sector were considered micro enterprises.
The investment limit of small enterprises has been increased to Rs 10 crore, and the companies would have to have turnover of less than Rs 50 crore.
Sitharaman added that to support MSMEs, global tenders will be disallowed especially for government procurement of up to Rs 200 crore. MSMEs will also be eligible for collateral free loans of Rs 3 lakh, which can be availed up to October 31.
MSMEs with up to Rs 25 crore outstanding and Rs 100 crore turnover would be eligible for this window. The loan, she said, will have a four-year tenure with moratorium of 12 months on principal repayment.
Furthermore, e-market linkage for MSMEs will also be provided and that CPSEs will pay all receivables to MSMEs within 45 days.
<strong>NBFCs</strong>
A Rs 30,000-crore special liquidity scheme will be provided for NBFCs, housing finance companies (HFCs) and micro-finance institutions (MFIs), the Finance Minister said, adding that these finance institutions have been facing difficulty in raising money in debt markets.
Under the scheme, investments will be made in both primary and secondary market transactions in investment grade debt paper of these institutions. The securities under the scheme will be fully guaranteed by the Central government.
Further, the government has also announced Rs 45,000-crore partial credit guarantee scheme for NBFCs.
Under the scheme, the first 20 per cent loss will be borne by the Centre, and even unrated papers will be eligible for investment, enabling NBFCs to reach out even to MSMEs in far-flung areas.
<strong>Discoms</strong>
The Finance Minister also announced a Rs 90,000-crore one-time package for the cash-starved Discoms, which will allow them to clear their dues to the power generation companies (Gencos).
Under the plan unveiled by the Finance Minister, the power sector financiers, PFC and REC, will infuse liquidity of Rs 90,000 crore to DISCOMs against receivables. Loans will be extended against state guarantees for exclusive purpose of discharging liabilities of Discoms to Gencos.
Discoms’ dues towards Gencos have risen to Rs 94,000 crore and this was making operations unsustainable as unpaid power producers were looking to stop power supplies to states.
Relaxations in tax and compliance
Continuing with major relaxations in tax compliance and rates, Sitharaman announced a rate cut of 25 per cent in tax deducted at source (TDS) and tax collected at source (TCS) which will lead to infusion of additional liquidity of Rs 50,000 crore in the system. This measure will be applicable for the rest of the current financial year. This relief is aimed at the non-salaried contractors, professionals, and other businesses.
The Finance Minister also said that the due date for filing income tax returns (ITR) has been further extended from July 31 to November 30.
Sandeep Jhunjhunwala, director, Nangia Andersen LLP, welcomed the package. In a statement, he said, “The reduction of TDS and TCS rates on non-salaried payments by 25 per cent will set free additional cash in the hands of the vendors, overall increasing liquidity in the economy. This relief could be enjoyed by all businesses and would play a pivotal role in increasing cash flows as the beneficial rates would be available till the end of the current financial year.”.
