The Hon’ble Finance Minister Nirmala Sitharamanji outlined the map of the first tranche of Rs 20 lakh crore fiscal stimulus. The announcement (the first of the 4Ls - Liquidity, Land, Labour, and Law) was made with the objective of boosting liquidity across various parts of the economy. Liquidity, incidentally, is of paramount importance, especially under the current circumstance of lockdown due to Covid-19 where economic activities have come to a halt. More so, it is important for the key factor of production i.e. capital.  The Finance Minister said that the package will address issues of ease of doing business, compliance, and due diligence. The intention is to build brands, take local brands, and take them to a global level.

The liquidity support measures encompassed the key areas of Micro, Small & Medium Enterprises (MSMEs), Non-Banking Financial Companies (NBFC), Micro Finance Institutions (MFIs), power companies, EPFs, contractors, real estate, direct tax measures, and provide an overall stimulus of ~Rs 5.94 lakh crore.  Of Rs 5.94 lakh crore, Rs 3.7 lakh is set aside for support to the MSMEs through collateral-free debt, subordinated debt, and equity support through fund of funds, which were the worst hit segments facing liquidity challenges amid the lockdown.  This comes as a positive news for banks and NBFCs as they have a large part of their books to SME sector lending. Stocks like DCB Bank, Federal Bank, City Union Bank, Shriram City Union Finance and Cholamandalam Investment are preferred play.

A new definition for MSMEs has been introduced raising the investment limit and eliminating the distinction between manufacturing and service sectors. Investment of under Rs 1 crore and turnover less than Rs 5 crore will be a micro business; investment of up to Rs 10 crore and turnover up to Rs 50 crore will be categorised as a small business. Investment up to Rs 20 crore and turnover up to Rs 100 will be defined as a medium business.

To boost the Make in India program and help MSMEs to do their business with a lot of confidence, the Finance Minister said that the Global tenders will be disallowed for government procurement for up to Rs 200 crore. Also, all MSME receivable from government-run firms will be paid off in 45 days.

The government has also extended the Employee Provident Fund (EPF) support of up to Rs 2,500 crore for another three months. Under the PM Garib Kalyan Yojana, payment of 12% of employer and 12% employee contribution was made into the EPF accounts of eligible establishments. This support was offered until May and now the same is being extended for June, July, and August. In order to provide more take-home salary, statutory provident fund contribution for employees will be lowered for both employees and employers to 10% from 12%. This will continue to be 12% for government firms while Government employees will pay 10%.

The government will launch a Rs 30,000 crore Special Liquidity Scheme, under which investment will be made in both primary and secondary market transactions in investment-grade debt paper of NBFCs/HFCs/MFIs. The Existing Partial Credit Guarantee Scheme (PCGS) scheme to be extended to cover borrowings such as primary issuance of Bonds/ Credit payables (liability side of balance sheets) of such entities. The first 20% of loss will be borne by the Government of India. This scheme will result in the liquidity of Rs 45,000 crore. This move is likely to encourage banks and mutual funds to invest in low rated paper at a time where liquidity has already dried up due to investors preferring lower returns with known risks.

The finance minister has also announced a Rs 90,000 crore liquidity injection for power distribution companies (Discoms), where revenues have dropped. The liquidity will be infused by the Power Finance Corporation and Rural Electrification Corporation. The loans will be given against state guarantee for the exclusive purpose of clearing of discoms' liabilities to the power generators. Central Public Sector Generation companies will give a rebate to discoms which will be passed on to the customers. As discoms are facing unprecedented cash flow problems, this Rs 90,000 crore of liquidity injection will help in clearing the outstanding dues of discoms by state owned financial institutions.

All contractors to central agencies like railways, road ministry, central public works department can be given an extension of up to 6 months without any additional costs. This covers construction works and goods and services contracts. It will cover obligations including completion of work, intermediate milestones, and extension of the concession period. The government also said that developers can now invoke a Force Majeure i.e. unforeseeable circumstances clause under the Real Estate Registration act. By invoking Force Majeure they can extend their registration and completion date by 6 months for all projects that were expiring on or after March 25 while the fresh project registration certifications will be issued automatically with new timelines.

In order to provide more funds at the disposal of the taxpayers, the rates of Tax Deduction at Source (TDS) for non-salaried specified payments made to residents and rates of Tax Collection at Source (TCS) for the specified receipts shall be reduced by 25% of the existing rates. This measure will release liquidity of Rs 50,000 crore. This reduction will come into effect from May 14, 2020, and will last till March 31, 2021. The payment of contract, professional fees, interest, rent, dividend, commission, and brokerage shall all be eligible for the reduced rate.

Also, the due date of all income tax returns for FY20 will be extended to November 30, 2020, from July 31 and October 31, 2020, and Tax audit from September 30, 2020, to October 31, 2020.

With this, we have come to an end of Fiscal Stimulus - Atmanirbhar Bharat Part I.

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