BackCentre rolls out stimulus 3 package in Diwali bonanza
Govt focuses on job creation, access to credit and farm support with ₹2.65 trillion booster dose
PremiumThe government on Thursday announced a ₹2.65 trillion stimulus package focused on job creation, access to credit and farm support, aimed at nurturing the economic recovery.
Union finance minister Nirmala Sitharaman, who announced the package, cited a host of economic indicators, including goods and services tax (GST) collections, energy consumption, railway freight loading, bank credit flow and foreign direct investments, to claim that a strong economic recovery was underway.
The stimulus package, termed as Aatmanirbhar Bharat 3.0, includes ₹1.45 trillion production-linked incentives for 10 sectors announced on Wednesday.
The stimulus may help underpin a nascent recovery after the economy slumped 23.9% in the June quarter as India implemented one of the world’s most stringent lockdowns to contain the spread of coronavirus.
The government and the central bank have announced wide-ranging measures since March to help the poor, farmers, as well as businesses to tide over the covid-19 crisis.
The total of all the relief measures announced by the Centre and the Reserve Bank of India (RBI) amounts to ₹29.87 trillion, or 15% of the gross domestic product (GDP), Sitharaman said.
The finance minister said that the central bank and rating company Moody’s Investors Service have upgraded their GDP projections, signalling that there is an improvement in the economy.
“The Reserve Bank, in its monthly report, predicted a strong return to positive growth in the economy. In Q3, growth will be in positive terrain, while earlier, the expectation (of positive growth) was in the fourth quarter. The central bank now expects it to be in Q3 (October-December)," the finance minister said.
On Thursday, Moody’s revised India’s gross domestic product (GDP) estimate to an 8.9% contraction for calendar 2020 from a 9.6% contraction estimated earlier.
As part of the latest stimulus, the government also offered an employees provident fund (EPF) subsidy to organizations to spur job creation in the formal sector.
Under the Atmanirbhar Bharat Rozgar Yojana, the central government will provide EPF subsidy for “new eligible employees" employed between 1 October 2020 and 30 June 2021 for a period of two years.
To increase access to credit, the ₹3 trillion government-backed, collateral-free loan plan—emergency credit line guarantee scheme (ECLGS)—for small businesses, business enterprises, individual loans for business purpose, MUDRA borrowers will now be extended till 31 March, from the current deadline of 30 November.
The emergency credit line guarantee scheme 2.0 will offer credit guarantee support for health care and 26 stressed sectors, including power, construction, real estate, iron and steel manufacturing identified by the Reserve Bank-appointed K.V. Kamath committee.
The stimulus also contained measures aimed at giving relief to construction and real estate companies.
Sitharaman offered income tax relief for developers and homebuyers in order to boost demand for residential real estate in the country.
The incentive involves amending the Income Tax Act to allow a 20% differential between the actual sale price of land or building and the stamp duty value, Sitharaman said. This will give relief to homebuyers as well as sellers.
The emphasis on construction activity, a labour-intensive industry, aims to create jobs and boost economic activity as it has a multiplier effect on the economy.
An additional outlay of ₹18,000 crore for PM Awas Yojana is expected to create an additional 7.8 million jobs, and lead to the production of 2.5 million tonnes of steel and 12.1 million tonnes of cement.
The government will infuse ₹6,000 crore equity into the National Infrastructure Investment Fund’s (NIIF) debt platform to boost infrastructure creation.
NIIF will then leverage this equity to raise ₹1.1 trillion over the next five years to finance infrastructure projects under the national infrastructure pipeline.
An additional budget outlay of ₹10,200 crore will also be provided towards capital and industrial expenditure.
Madan Sabnavis, chief economist at Care Ratings, said these measures will help in boosting employment generation, providing additional credit to the stressed sectors, have multiplier effects on undertaking additional capital expenditure and spending for the real estate sector, and more expenditure towards the rural economy.
“We expect this economic stimulus to have an impact of around 0.25-0.6% of GDP on the fiscal deficit," Sabnavis said.
To support the rural economy, the finance minister announced an additional outlay of ₹10,000 crore under the PM Garib Kalyan Rozgar Yojana.
Aditi Nayar, principal economist at ICRA, said that multi-sectoral announcements are expected to boost sentiment and help to bolster the strength of the economic recovery in the second half of the financial year.
“In particular, the measures to boost capital spending and infrastructure, job creation, as well as support the rural farm and non-farm economy, will trigger a virtuous cycle in the economy. While the benefit of some of the measures announced may manifest into a growth boost only over the medium term, they are nonetheless very welcome," Nayar said.
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