To support the economic recovery process, the government Thursday announced a fresh set of measures, worth around Rs 1.2 lakh crore, to boost job creation, provide liquidity support to stressed sectors and encourage economic activity in housing and infrastructure areas. An additional outlay of Rs 65,000 crore is being provided as a fertiliser subsidy to support increasing demand on the back of a good monsoon and sharp increase in the crop-sown area.
Announcing the new set of measures ahead of Diwali, Union Finance Minister Nirmala Sitharaman said the Indian economy is witnessing a strong recovery, aided by the government’s “unrelenting reform pitch”.
The latest measures include extending the Emergency Credit Line Guarantee Scheme (ECLGS) to 26 stressed sectors, additional funding for housing and infrastructure sector, a new scheme to promote job creation and additional outlay for rural employment. Changes are being made in tax laws to help clear unsold inventory of residential housing units up to Rs 2 crore.
While the government refrained from providing any direct fiscal support to stressed sectors such as aviation and tourism, these are being given access to the government-guaranteed, collateral-free Rs 3 lakh crore loan scheme that was opened for MSMEs. Companies which have loan dues up to 30 days (Special Mention Accounts or SMA 0) as on February 29, 2020 will be provided additional credit of 20 per cent outstanding under the scheme.
Entities in 26 stressed sectors identified by the Kamath committee, as well as the healthcare sector, with credit outstanding of above Rs 50 crore and up to Rs 500 crore as on February 29, are eligible to avail funding under the scheme.
Stressed sectors including construction, trade, hotels and transport contributed nearly 83.4 per cent to the contraction in the services sector in the April-June quarter. The ECLGS scheme, which has been extended till November 30, has made disbursals of Rs 1.48 lakh crore against sanctions of Rs 2.03 lakh crore to 60.67 lakh borrowers, as per government data. The new scheme for stressed sectors will as of now utilise the unused funds available within the Rs 3 lakh crore limit, even as officials indicated that this could be enhanced depending upon the requirements.
A five-member expert committee, headed by K V Kamath, former chairman of ICICI Bank, which was set up to recommend financial parameters required for a one-time loan restructuring window for corporate borrowers, said in its report that companies in sectors such as retail trade, wholesale trade, roads and textiles are facing stress. Sectors that have been under stress pre-Covid include NBFCs, power, steel, real estate, construction.
The committee noted that corporate sector debt worth Rs 15.52 lakh crore had come under stress after Covid-19 hit India, while another Rs 22.20 lakh crore was already under stress before the pandemic. This effectively means that Rs 37.72 lakh crore (72 per cent of the banking sector debt to industry) remains under stress. This is almost 37 per cent of the total non-food bank credit. The tenor of additional credit availed under the scheme will be five years including one year of moratorium on principal repayment. The scheme will be available until March 31, 2021. Industry sources said these measures will provide significant relief to companies that are expected to recover in line with the pick-up in economic activity, but face immediate shortage of funds.
Sitharaman announced a new Atmanirbhar Bharat Rozgar Yojana, under which it will provide subsidy for provident fund contribution for adding new employees to establishments registered with the Employees’ Provident Fund Organisation (EPFO). This scheme is estimated to cover over 99 per cent of the establishments and 65 per cent of all employees in the formal sectors, she said.
The central government will provide the subsidy for two years for workers who lost jobs between March 1 and September 30 and for new workers employed on or after October 1. Under the scheme, the government will pay PF contribution for workers with wages up to Rs 15,000. The contribution of 24 per cent for both employers and employees for establishments with up to 1,000 employees will be borne by the government and for establishments employing more than 1,000 employees, 12 per cent of the employees’ share will be contributed by the government. The additional eligibility condition for the scheme specifies that the subsidy will be provided for employment of two new employees if the establishment has 50 or less employees, and will be paid for five new employees if establishments have more than 50 employees.
The subsidy amount under the scheme, which will be operational until June 30, 2021, will be credited upfront only in Aadhaar-seeded EPFO accounts (UAN) of new employees.
For the housing and infrastructure sectors, the government will provide an additional outlay of Rs 18,000 crore for Pradhan Mantri Awas Yojana (PMAY) –Urban, which will help 12 lakh houses to be grounded and 18 lakh to be completed.
For contractors participating in government projects, the government announced to bring down the earnest money deposit and performance deposit on government tenders. Performance security deposit on contracts has been reduced to 3 per cent from around 5-10 per cent, while EMD will not be required. The relaxations provided till December 31, 2021, will be a major relief to the construction sector as it will free up the capital of the contractors and will enhance their financial ability to carry out the project, industry sources said.
To help clearance of unsold inventory in the housing sector, developers have been allowed to sell their housing units at 20 per cent lower than the circle rate by increasing the permissible differential from 10 per cent to 20 per cent. The benefit will, however, be available only on primary sale of residential units with price value up to Rs 2 crore until June 30, 2021. This will effectively allow the developers to reduce their price below the circle rate. The government also announced to provide Rs 6,000 crore of equity in the National Investment and Infrastructure Fund (NIIF) to support debt financing totalling Rs 1.1 lakh crore by 2025.
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