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Finance minister Nirmala Sitharaman. (Photo: Pradeep Gaur/Mint)
Finance minister Nirmala Sitharaman. (Photo: Pradeep Gaur/Mint)

Opinion | Dissecting phase 1 of Atmanirbhar Bharat package

This is the first step of a responsible fiscal policy response to the economic crisis

Tough times require tough decisions. The Prime Minister’s announcement of Atmanirbhar Bharat based on five pillars was just the catalyst needed to turn our temperaments away from the covid-19 pandemic. The five pillars that form the core of the strategy include ‘Economy, Infrastructure, System, Vibrant Demography and Demand’. As such, demography and demand are two sides of the same coin and form one of the dimensions of the first. Demand was losing steam even before the pandemic. The sudden knock-out effect on it due to pandemic needed some drastic measures. The 20 trillion stimulus package is the total sum of both fiscal and monetary steps. Wednesday’s announcement by the finance minister is the first step of a responsible fiscal policy response and builds upon the Pradhan Mantri Garib Kalyan Package. The first phase of the fiscal stimulus has predominantly eyed MSMEs, which account for 35% of the GDP and contribute to one third of the exports.

Low on cash and facing acute constraints to sustain operations, today’s announcements address this aspect of MSMEs. With these measures, combined with the slogan of ‘become vocal for our local products’, purchase of MSME products in government procurement, benefits of new definition, market linkage and TDS measures, this sector can see steady revival in demand.

Coming to some specific measures, the steps announced on Wednesday address the MSME issues, depending upon the state they are in. For those who are healthy, the measures include 3 trillion collateral-free automatic loans on concessional terms. For MSMEs that have become unviable or are loan defaulters, a 20,000 crore subordinate debt for MSMEs and 50,000 crore equity infusion through MSME Fund of Funds has been announced. Further, MSME receivables from the government and CPSEs will be released in the next 45 days. Local contractors who generally operate as proprietors or partnerships are not separate from MSMEs. An extension up to six months (without costs to contractor) for contracts with central undertaking has been allowed. Along with this, government agencies will partially release bank guarantees. Since the funding will be routed through the banking system, CGTMSE will provide partial credit guarantee support to banks.

The government has also launched a 30 000 crore Special Liquidity Scheme for NBFCs/HFCs, under which investment will be made in both primary and secondary market transactions in investment grade debt paper of NBFCs/HFCs. A 45,000 crore Partial Credit Guarantee Scheme (PCGS) 2.0 for NBFCs with low credit rating has also been announced. Existing PCGS scheme will be extended to cover borrowings such as primary issuance of bonds/ CPs (liability side of balance sheets) of such low-rated entities. The first 20% of loss will be borne by the government. To support production activity, the availability of power has to be ensured. State-owned power lenders will infuse liquidity of 90,000 crore to discoms against their receivables. Loans will be given against state guarantees to exclusively discharge liabilities of discoms to gencos. Other measures like indirect tax and concession on PF contribution will address the short-term liquidity crunch both at the employer and employee level. In a nutshell, phase 1 of Atmanirbhar Bharat has covered a very large turf. Some of the long-pending issues have been addressed. And the direct fiscal cost of the 6 trillion announced is roughly 31,500 crore. Clearly, the measures have the maximum bang for the buck!

Soumya Kanti Ghosh is Group Chief Economic Advisor, State Bank of India. Views are personal.

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