India announces 5th tranche of stimulus, total package pegged at ₹21 trillion
On 26 March, the government had announced a ₹1.7 trillion relief package, which many economists termed inadequateThe package aims to build a self-reliant India, as the country enters the fourth phase of the lockdown starting 18 May
NEW DELHI: Increased funding under the marquee Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS), exclusion of debt default due to coronavirus pandemic under the Insolvency and Bankruptcy Code (IBC) and reform linked jump in states’ borrowing limits were some of the focus areas of the fifth tranche of stimulus announced on Sunday.
In addition, a new public sector enterprise policy that will create a recharged disinvestment playbook and creation of new health infrastructure was also announced by finance minister Nirmala Sitharaman on Sunday.
On 26 March, the government had announced a ₹1.7 trillion relief package, which many economists termed inadequate. There has been a growing criticism of the government for overlooking the plight of migrant workers who have been worst hit by the lockdown. Thousands of migrants have tried to flee cities on foot, trying to make way to their villages, hundreds of miles away.
While making the announcements on Sunday to ease the pressures of the lockdown, considered among the severest in the world, Sitharaman said the government will spend ₹1 trillion on the rural jobs scheme. An additional allocation of ₹40,000 crore to the ₹61,000 crore budgeted spent for FY21 , to create jobs for migrants returning to their villages.
Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) promises 100 days of work to a household in a year.
The states have sought more resources to deal with the health and the socio-economic impact of the coronavirus pandemic and pitched for leveraging the jobs scheme.
As part of the announcement made for the Rs20 trillion stimulus package; the borrowing limits for states under the Fiscal Responsibility and Budget Management Act (FRBM) has been increased to 5% of gross state domestic product (GSDP) from 3% at present for FY21 subject to carrying out specific reforms. This will help them raise Rs4.28 trillion in their fight against the Covid-19 pandemic in the backdrop of their finances being under considerable strain.
“States have so far borrowed only 14% of their earlier 3% limit which entailed resources of ₹6.4l lakh crores," Sitharaman said.
Part of the borrowing will be linked to specified reforms, including recommendations by the 15th Finance Commission such as ensuring sustainability of the additional debt through higher future GSDP growth and lower deficits.
Of the 200 basis points raise, while the first 50 basis points will be unconditional; the next 100 basis points will be divided into four tranches of 25 basis points each, wherein each tranche will be linked to clearly specified, measurable and feasible reform actions.
The reforms include universalisation of ‘One Nation One Ration card’, improving ease of doing business, power distribution reforms and streamlining urban local body revenues. The last 50 basis points borrowing will be given to states as grants, if milestones are achieved in at least out of four reform areas.
India plans to roll out one of the world’s most aggressive bailouts in relation to economic size, equating to about 10% of gross domestic product (GDP).
While articulating the way ahead for public sector enterprises, Sitharaman said that a list will be prepared wherein a distinction will be made on the basis of strategic importance of such entities.
The central public sector enterprises (CPSEs) that will be left outside the strategic list will be either merged or privatised depending upon market conditions. Sitharaman said mushrooming of CPSEs will be allowed in strategic sectors and in those sectors not more than four state run units will be allowed.
“An Atmanirbhar Bharat needs a coherent policy," Sitharaman said and added, “PSUs will play a critical role and areas will be defined where their impact will be felt."
The plan for a self-reliant India, or Aatmanirbhar Bharat, aims to focus on land, labour, liquidity and laws.
She had in her maiden budget increased the divestment target to ₹1.05 trillion for FY20 from ₹90,000 crore, focusing on consolidation of public sector units (PSUs) and strategic disinvestment. While building a case for such a move, the Economic Survey for 2019-20 said post-privatisation, CPSEs performed better. The survey argued that privatisation results in higher profitability, efficiency, competitiveness and professionalism.
These decisions comes at a time when the government has decided to privatise national carrier Air India. Interestingly, it is the national carrier that has played a critical role in evacuating Indians in this time of crisis.
Sitharaman also said the minimum threshold to initiate insolvency proceedings will be raised to ₹1 crore from the earlier trigger of Rs1 lakh and any debt default due to the pandemic shall be excluded from the IBC. No fresh insolvency proceeding will be initiated for a year against any company. A special insolvency framework will also be created to protect micro, small and medium enterprises from fresh IBC proceedings.
Also, defaults under the Companies Act will be decriminalised and amendments made will declog the National Company Law Tribunal (NCLT).
To further help the companies with raising resources, Sitharaman today said that the government will allow direct listing of securities by Indian public companies in permissible foreign jurisdictions. In addition, private companies which list non convertible debentures (NCDs ) on stock exchanges will not be regarded as listed companies.
This comes in the backdrop of Indian economy grinding to a near halt. The fiscal package aims to build an India based on self-reliance, as the country enters the fourth phase of the lockdown starting 18 May.
While breaking up the stimulus package figures, Sitharaman said the earlier measures announced accounted for a stimulus of ₹1.92 trillion. She said the first tranche announced on Wednesday pertaining fiscal and regulatory measures account for ₹5.94 trillion, the second batch of measures announced on Thursday to give relief to the poor including migrant workers, farmers, street vendors and members of tribal community accounted for ₹3.10 trillion.
The third tranche dealing with the farm sector package to free up India’s fragmented agriculture market from trade curbs and stock limits, while offering a new framework to reduce risks and price uncertainties for farmers accounted for ₹1.5 trillion.
The fourth tranche (for liberalising the mining, defence production and aerospace industries) and fifth tranche announced today accounted for ₹48,100 crore, taking the total package to around ₹21 trillion. This equals to almost a full year of India’s gross tax revenue collections, and includes the recent monetary easing announced by the Reserve Bank of India.
Amid the lockdowm, India’s manufacturing activity plummeted to a record low in April, while the country's trade basket plummeted to a record low in April as countries sealed their borders to arrest the spread of the coronavirus pandemic.
India's merchandise exports plunged 60.3% and imports fell 58.7% resulting in a trade deficit of $6.8 billion.
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