On Tuesday (March 24), Finance Minister Nirmala Sitharaman and Minister of State for Finance, Anurag Thakur, announced several measures aimed at alleviating the growing economic stress in the country in the wake of the disruption caused by the spread of the novel coronavirus SARS-CoV-2.
Contrary to expectations, the Minister did not announce any fiscal sops, and limited herself to providing extensions for a range of regulatory requirements. The regulatory relief applies to taxation — both direct and indirect — as well as everyday working norms for a variety of economic magnates such as exporters and importers, small and medium-sized firms, and individuals as well.
Economic measures to tackle COVID-19: What was the key change?
The most important change relates to the regulatory forbearance for firms that are likely to face bankruptcies. Under the Insolvency and Bankruptcy Code (IBC), bankruptcy proceedings can be started against a firm that defaults on an amount of Rs 1 lakh or more — this threshold has now been raised to Rs 1 crore.
This will immediately help micro, small and medium enterprises (MSMEs) which are expected to be among the worst hit due to the ongoing economic slowdown. By raising the threshold, the government has provided immediate reprieve to all such firms. This relief is there from now till April end.
The FM also noted that if the situation demands — that is, if the economic distress continues or intensifies — the government would consider suspending Sections 7, 9, and 10 of the IBC for a full six months after April end.
In effect, this means the regulatory bodies will look the other way if firms falter in paying back their dues.
“Suspension of Section 7, 9, and 10 of the IBC in case of prolonged challenges from the COVID-19 lockdown will do away with initiation of insolvency resolution proceedings against defaulting corporates. This will provide a breather for entities who may have defaulted due to the COVID-19 challenges, and will give them a recovery opportunity once the situation normalises,” Krishnan Sitaraman, Senior Director, CRISIL Ratings, said.
What are the other changes?
The government has increased the regulatory deadlines from March-end to July-end across several schemes.
As such, the deadline for filing income-tax returns for 2018-19 has been relaxed and the penal interest rate has been reduced.
On Goods and Services Tax compliance, too, there has been a similar relief. The Aadhaar and PAN linkage too has been pushed to June-end.
Government has also extended the deadline for dispute resolution schemes on the direct tax (Vivaad se Vishwas Scheme) and indirect taxes (Sabka Vishwas Scheme) till 30th June.
It has also provided relief to importers whose shipments are delayed or those who need extended quarantining facilities. In the fisheries sector, Sanitary Import Permits, which were to expire by April 15 have been extended for 3 more months.
To what extent will these measures help?
The sum and substance of Tuesday’s announcements is to reduce the regulatory and compliance burden in the formal sector of the economy. These decisions will certainly help at a time when firms are not only facing tremendous disruption in their supply chains, but are also finding that the demand for their products and services has almost evaporated overnight.
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However, these measures do not do two key things.
One, they do not directly provide money to the distressed sectors — these measures only stop asking for dues for the time being.
Two, these measures target only the organised sector of the economy. About 90% of employment in India is in the informal or unorganised sector. Economic slowdown affects that sector the most, and is likely to result in massive unemployment and deprivation. None of these measures is targeted towards that demographic.
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