COVID RELIEF PACKAGE: EXPLAINED

COVID RELIEF PACKAGE: EXPLAINED

Most of the economic activity in the country had come to a standstill after the government imposed a nationwide lockdown beginning March, 25th  to check the spread of COVID-19. The lockdown has since been extended three times till 31st May which will mark 70 days of Lockdown.

FM Nirmala Sitharaman’s speech on 15th May 2020, allowed the resumptions of economic activity with some relaxations.

To help the country's economy to get up on its feet, the government has designed a relief package. This will be the fifth-largest package announced by any country to tide over the economic impact of the novel coronavirus. 

The total cost of the package will be 20 lakh crore. The FM of our nation said it would be named, “Atma Nirbhar Bharat Abhiyan.”

 

The PM said the special economic package will have to be complemented with bold reforms in every sector.

These reforms will be based on five pillars:

• Economy
• Infrastructure
• The system based on 21st-century technology-driven arrangements
• Vibrant demography
• Demand

The relief package is more of a liquidity package than a financial package, allocated by the government to help the small and medium businesses by promoting the campaign ‘Being Vocal for Local’.

This fiscal package will benefit the most affected class of the country i.e., labourers, farmers, honest taxpayers, and MSMEs, which is equal to 10% of India’s GDP.

Economic Package for Liquidity:

• RBI has reduced CRR which enhanced liquidity of Rs. 1,37,000 crores.
• Also announced special refinance facilities to NABARD, SIDBI and NHB
• Global tenders disallowed upto 200 crore
• EPF support for business and workers for 3 months more
• Special liquidity scheme for NBFCs / NFCs and MFIs
• Liquidity injection for Power Distribution Companies
• Relief to contracts for 6 months for obligations like completing work and easing cash flows
• Extension of Registration and completion date of projects under RERA
• Liquidity though TDS/TCS rate reduction

Impact on MSMEs:

There were 15 measures, out of which six are designed to uplift micro, small and medium enterprises. The whole ‘Make in India’ campaign revolves around promoting local businesses and enterprises. 

Some of the stimulus measures are as follows:

• 3 lakh crore collateral-free automatic loans for businesses, including MSMEs. This will be a full credit guarantee for a lender on both principal and interest. 
• Subordinate debt 20,000 crores for stressed MSMEs. A credit guarantee trust will give partial cover and the government will provide the funds. 
• Rs. 50,000 cr equity infusion for MSMEs through funds of funds
• The investment limit has been raised, the criteria to be called MSME will include turnover and the differentiation between manufacturing and services.
• Small businesses under MUDRA- Shishu Loans will be provided 2% interest relief for prompt payees for a period of 12 months. 

Other Measures:

• Liquidity support will be provided to farmers and the rural economy. Migrants will be supported using the State Response Disaster Fund and ensured a free food grain supply for 2 months. (SRDF)
• Labour Codes have been revised to reduce the disparity  in regional minimum wages which will also include annual health check-up for employees. Many such reforms in the labour code will ease the life of the low and middle class.
• The credit linked subsidy scheme (CLSS) allocation of Rs. 70,000 crore will boost the housing sector and middle income group.
• Upgradation of Industrial infrastructure by making information available on IIS (Industrial Information System) with GIS mapping will ease infrastructure development. Other policy reforms in the coal, mineral, defence, space, atomic energy sectors are bold moves which will shape the economy. 

Impact on Investment:

• This 20 lakh crore package looks over every aspect and sector of the nation. It includes a 1.7 lakh crores stimulus package for the poor people. 
• In March, 38% of the market fell and hit rock bottom because of low liquidity in the market. Not just the share market, bond and gold also were also rapidly falling. 
• While the March stimulus was 0.8 percent of GDP, RBI’s cut interest rates and liquidity boosting measured totalled to 3.2 percent of the GDP. 
• There will be no side effect on the country’s economy after the execution of this package. It’s like taking homeopathic medicine, addressing the root causes.
• The stock market will be affected as most of the sectors have taken a hit and faced some extreme losses eg. Banking, finance & the travel industry. While some face losses, there are some industries that are benefiting from the current situation, Telecommunication industry, power sector, Pharmaceuticals, and e-commerce are such industries.  
• Changes are being made in the old system viz. Changes in customs duty on imports will help make Indian products compete in the global market. Lowering of import duties on raw materials needed for manufacturing, as well as high import duties on finished products will ensure “Make in India” successful.
• We at Cedrus believe in asset allocation and goal-based allocations as they are very important. For long term goals, equity is very important because of the volatility in short term investments. Hence investors should stick to their asset allocation and make sure if their investments schemes are right.
• Several experts and scientists have said that the virus is going to be a part of our lives for a long time. 
• But it is also important to ensure that our life does not revolve only around it. People should work towards their targets while taking precautions such as wearing masks and maintaining a physical distance. 

We at Cedrus wish all a happy and healthy return to the new normal life.