Key Highlights of Stimulus Package - Day 1

• Rs 3 lakh crore Emergency Working Capital Facility for Businesses, including MSMEs

• Rs 20,000 crore Subordinate Debt for Stressed MSMEs

• Rs 50,000 crore equity infusion through MSME Fund of Funds

• New Definition of MSME and other Measures for MSME

• No Global tenders for Government tenders of up to Rs 200 crore

• Extending the Employees Provident Fund Support for business and organised workers for another 3 months for salary months of June, July and August 2020

• EPF Contribution to be reduced for Employers and Employees for 3 months to 10% from 12% for all establishments covered by EPFO for next 3 months

• Rs. 30,000 crore Special Liquidity Scheme for NBFC/HFC/MFIs

• Rs. 45,000 crore Partial credit guarantee Scheme 2.0 for Liabilities of NBFCs/MFIs

• Rs 90,000 crore Liquidity Injection for DISCOMs

• Relief to Contractors given by extension of up to six months for completion of contractual obligations, including in respect of EPC and concession agreements

• Relief to Real Estate Projects the registration and completion date for all registered projects will be extended up to six months

• Tax relief to business as pending income tax refunds to charitable trusts and non-corporate businesses and professions to be issued immediately

• Reduction in Rates of ‘Tax Deduction at Source’ and ‘Tax Collected at Source” by 25% for the remaining period of FY 20-21

• Due Dates for various tax related compliance's extended

What does this mean?

1. For SMEs this is a positive measure and while the Rs 3 lkh crore would have flowed in the normal course from banks, the advantage here is in terms of the cost being capped, term being fixed with moratorium and more importantly guaranteed by the Government.

a. Also there will be a facility whereby funding is provided to those units under stress for up to Rs 20,000 cr and equity provided for those which are viable for Rs 10,000 cr which can be leveraged to reach Rs 50,000 cr of equity. It is still not clear if these amounts will come from the Budget or through SIDBI or any other agency.

b. Their definition has changed now and the threshold for qualifying as micro, small or medium has been enhanced which will enable them to attain scale. Presently they have an incentive to remain small to derive benefits of being SMEs.

2. For NBFCs there is additional Rs 75,000 being provided in the form of guarantee and partial credit enhancement for the lower rated firms. This will enable them to borrow more from the market. As this is a guarantee, there will not be a major impact on the fiscal deficit and go as contingent liability.

3. For the Discoms, the amount may be small but useful for them as they can use the funds to pay the generators and transmission companies. The Rs 90,000 cr will be paid from reserves or alternatively borrowed from the market.

The other measures help at the micro level for contractors, real estate companies and tax payers. The total amount of relief provided by these measures would be around Rs 6 lkh crore while the measures induced by the RBI and government earlier through monetary stimulus and fiscal relief would be around Rs 7 lkh crore. Therefore, another Rs 7 lkh crore may be expected in the coming days.

Source : CARE Ratings