Breaking Down The First Tranche of Govt’s Stimulus Package

FM Nirmala Sitharaman revealed the first part of India’s economic stimulus package on 13 May 2020. The step comes in the light of economic loss to small businesses and employees due to the lockdown imposed to contain Covid-19.
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Crux of the Matter

Boost for businesses
Govt has changed the definition of Micro, Small and Medium Enterprises (MSME). In the new definition:

  • Micro Units: up to ₹1 crore investment or ₹5 crore turnover
  • Small Units: up to ₹10 crore investment or ₹50 crore turnover
  • Medium Units: up to ₹20 crore investment or ₹100 crore turnover

Besides the definition, the following measures were taken for MSMEs:

  • Provision of over ₹3,00,000 crore loan free of collateral for 45 lakh MSME units.
  • Guarantee of principal cover and interest by the government.
  • ₹20,000 crores of subordinate debt provided to cover over 2 lakh stressed MSME units.
  • Government and investors support of ₹50,000 crores to equity.

NBFC, HFC and MFI Reforms
NBFCs, House Financing Companies, and Micro Finances will receive benefits of the Special Liquidation Scheme.

  • ₹30,000 crores will be provided to support liquidity and mutual funds.
  • Most NBFCs and MFIs covered are the ones supporting MSMEs.
  • ₹45, 000 crore of partial credit guarantee for NBFCs to help solve liquidity issues and ease the lending to MSMEs.

DISCOM and Construction

  • Distributors of Electricity (DISCOM) will receive ₹90,000 crores as liquidity injection.
  • Real estate agencies would be able to extend completion/registration dates by 6 months for projects expiring on/after 25 March 2020.
  • To enhance local business and MSME, Govt has disallowed Global Tenders up to ₹200 crores for government services.
  • Move to shield MSME from large scale foreign industries, thus promoting local business

Benefits to Individuals

  • Tax Deduction at Source (TDS) and Tax Collection at Source (TCS) reduced by 25%, costing Govt around ₹5,000 cr while helping low-income individuals and providing more cash in the hands of spenders.
  • 72 lakh employees exempted from Employee Provident Fund (EPF) deductions for the next 3 months. The government will bear that cost of around ₹2,500 crores.
  • Due date of Income Tax (IT) returns extended to 30 November 2020.
  • Due date for time-barring assessments due on 30 September 2020 has been extended to 31 December 2020, and on 31 March 2021 to 30 September 2021, thus helping companies and officials from sudden load post-lockdown.

  • The Marshall Plan (officially the European Recovery Program, ERP) was an American initiative passed in 1948 for foreign aid to Western Europe. The United States transferred over $12 billion (equivalent to over $128 billion as of 2020) in economic recovery programs to Western European economies after the end of World War II. The goals of the United States was to rebuild war-torn regions, remove trade barriers, modernize industry, improve European prosperity, and prevent the spread of Communism. The largest recipient of Marshall Plan money was the United Kingdom (receiving about 26% of the total), followed by France (18%) and West Germany (11%).
  • The Molotov Plan was the system created by the Soviet Union in 1947 in order to provide aid to rebuild the countries in Eastern Europe that were politically and economically aligned to the Soviet Union. It was originally called the “Brother Plan” in the Soviet Union. It can be seen to be the Soviet Union’s version of the Marshall Plan, which for political reasons the Eastern European countries would not be able to join without leaving the Soviet sphere of influence.
  • Rahul Gandhi on 5th May engaged in a conversation with economist and Nobel laureate Abhijit Banerjee to discuss the economic measures India can take to help those suffering in the lockdown. In the video conference, Abhijit Banerjee said, “Direct cash transfer is the way out, not only for the poor but also those hit by the long spell of lockdown”. Abhijit also said, “We need a large stimulus package like the US. The US has announced a package of 10% of its GDP.”