In a first set of measures to mitigate the economic impact of the devastating second Covid wave, Finance Ministry announced a series of steps aimed to push credit off-take in priority areas such as health infrastructure and the severely hit tourism sector by providing interest-rate concessions.
Alongside a move to expand the scope of the Emergency Credit Line Guarantee Scheme for small and medium firms from Rs 3 lakh crore to Rs 4.5 lakh crore, Central government announced a credit guarantee scheme amounting to Rs 50,000 crore to ramp up healthcare infrastructure beyond the eight major metros.
And a credit guarantee of Rs 60,000 crore for other sectors impacted by Covid.
Need for the Measures:
- The government pegged the total financial implications of the package, which included the reiteration of some steps that were already announced such as the provision of food grains to the poor till November and higher fertiliser subsidies, at ₹6,28,993 crore.
- The measures to keep enterprises afloat in the aftermath of COVID 2.0.
- The extension of ECLGS’s scope and coverage are expected to provide significant support to the cash flow of the stressed sectors.
- Tourism had been one of the most impacted sectors and the package would usher in much-needed liquidity and help revive the employment-intensive sector.
- The pinpoint focus on augmenting manpower and infrastructural resources for paediatric care is a welcome step and a new beginning.
- Economists, however, noted that the elements of direct stimulus in the package and its upfront fiscal costs in 2021-22, are likely to be limited.
- More stimulus steps may be needed to shore up the economy through the rest of the year.
Capital Expenditure (CAPEX) plans and measures to expedite infrastructure investment:
- While reviewing the capital expenditure performance of the Ministries and their CPSEs, Finance Minister emphasised that enhanced CAPEX will play a critical role in revitalising the economy post-pandemic and encouraged the Ministries to front-load their capital expenditure.
- Ministries were also requested to aim to achieve more than their CAPEX targets.
- Finance Minister said that the Budget for Financial Year 2021-22 provided a capital outlay of Rs. 5.54 lakh crore, a sharp increase of 34.5% over the Budget Estimate of 2020-21.
- However, the efforts from the budgetary side to increase the capital expenditure have to be complemented by the Public Sector Enterprises.
- Finance Ministry also highlighted that the infrastructure expenditure is not just Central Government budgetary expenditure on infrastructure and includes infrastructure spending by State Governments and private sector.
- It also includes Government expenditure through extra-budgetary resources.
- Therefore, Ministries are to actively work on getting projects funded through innovative structuring and financing and provide all support to private sector for enhancing infrastructure spending.
The eight key announcements made by the Central government:
- A total of Rs 1.1 lakh crore loan guarantee scheme for sectors affected by COVID-19 Rs 50,000 crore to the health sector for scaling up health infrastructure.
- For health sector, maximum interest rate capped at 7.95 percent Rs 60,000 crore to other sectors. For other sectors, interest rate capped at 8.25 percent.
- Scope of ECLGS enlarged, the overall cap increased from Rs 3 lakh crore to Rs 4.5 lakh crore. Rs 2.69 lakh crore loans disbursed under ECLGS so far to 1.1 crore units.
- Credit Guarantee Scheme launched to provide loans to small borrowers via MFIs. Maximum loan to the individual at Rs 1.25 lakh, interest rate 2 percent below RBI prescribed rate.
- Focus on new loans, stressed borrowers except NPAs to be covered. Loan duration of 3 years under the scheme.
- New scheme to revive tourism with 100 percent guaranteed loans. Financial support to be extended to more than 11,000 registered tourist guides, Travel & Tourism Stakeholders (TTS).
- TTS to get up to Rs 10 lakh loans under the scheme Licensed Tourist guides to get up to Rs 1 lakh loan
- Free tourist visas to 5 lakh tourists. Scheme applicable till 31 March 2022 or till the first 5 lakh tourist visas get covered, whichever is earlier
- Atmanirbhar Bharat Rozgar Yojana extended from 30 June 2021 to 31 March 2022. More than 21.4 lakh people of nearly 80,000 establishments have already benefited from the scheme
- Farmers to get additional protein-based fertilizer subsidy of nearly Rs 15,000 crore.
- Free food grains will be provided to the poor from May to November 2021 under Pradhan Mantri Garib Kalyan Anna Yojana (PMGKY). Total financial implication nearly Rs 94,000 crore, making the total cost of PMGKY nearly Rs. 2.28 Lakh crore.
- Release of Climate Resilient Special Traits Varieties, Under this, the Government will release 21 Climate-resilient and bio-fortified special varieties of crops.
- Revival of North Eastern Regional Agricultural Marketing Corporation(NERAMAC) for getting remunerative prices of agri-horticulture products.
- Boost Export Insurance Cover, Infusion of equity in Export Credit Guarantee Corporation (ECGC) for 5 years, to boost export insurance cover.
- Broadband to each Village through BharatNet PPP Model: Under this, BharatNet will be implemented in PPP model in 16 States on viability gap funding basis.
- This will enable the expansion and up gradation of BharatNet to cover all Gram Panchayats and inhabited villages.
The focus was largely on extending loan guarantees and concessional credit for pandemic-hit sectors and investments to ramp up healthcare capacities.
It is believed that these measures will help to stimulate economic activities, boost production & exports and generate employment.
However, economists opine that more steps may be needed to shore up the economy through the rest of the year.