Decoding 20L Crore Package in less than 15 Minutes (Part 1)

5 min read
Decoding 20L Crore Package in less than 15 Minutes (Part 1)

So if you thinking that the government is actually spending 20 lakh crores on you, then you are mistaken.

20 lakh crores is combination Monitory and Fiscal stimulus .

1) 8 Lakh Crore Liquidity infusion by RBI (Monetary Stimulus)
2) 12 Lakh Crore Fiscal Stimulus package

Note: This 12 Lakh Crore Fiscal Stimulus package Includes 1.7 Lakh Crore old stimulus package .

US announced $2 Trillion, Germany announced $190 billion only Fiscal Stimulus  package not the combination of Monitory and Fiscal.

Now let's start.

Previously Businesses were classified as Micro, Small, or Medium depending on the amount of investments they were making in plant and machinery. So if you made investments of up to 5 Cr., then you were classified as a Small enterprise. But companies started hiding investments and wished to show them as small even if they've now become medium.

Government had to intervene and they finally figured that total revenues would be a good measure since claims regarding revenue can easily be verified with the GST Sales data filed at the Goods and Service Tax portal. Government finally charged ahead and introduced turnover as an additional criterion.

First tranche – Rs 5,94,550 crore (MSMEs, Discoms, TDS, NBFCs, FPF)

Major highlights:

1) This included Rs 3 lakh crore collateral-free loans. If you are a business with a loan burden on your hands, banks will now extend new loans (of up to 20% of the total loan outstanding) so that you can restart operations. You’ll have 4 years to repay this loan. Repayment obligations won't start until the end of the first year. The government will stand as your guarantor in case you default and they will compensate the banks in full (interest and principal).
So technically, banks should be more willing to lend to these institutions now.

Eligibility: Borrowers with upto 25 Cr outstanding loan and 100 Cr turnover.

MSMEs have been struggling for well over a decade now. Demonetization, GST, red tape, and a whole host of other issues have almost destroyed them. In fact, by 2018, thousands of MSMEs were on the verge of default with close to 80,000 crores worth of problem-loans i.e. loans that were unlikely to be paid back. government intervention was necessary and the finance minister finally announced 3 lakh crore worth of collateral—free loans for businesses, including MSMEs in a bid to plug the funding gap.

2) Rs 90,000 crore for power distribution companies via PFC and REC. (Discussed in detail here).

3) 50,000 Cr through reduction in TDS/TCS.

Example: If you have 1 Cr in Fixed Deposit at 7.5% you get 750,000 Rs then TDS previously TDS used to deduct 75,000 Rs. (10% of interest income) but now it will deduct only 56,250 Rs. (only 7.5% deduction with 2.5% relief). You have to pay remaining 18,750 at later stage back to government. So, this is a temporary relief.

4)  Rs 50,000 crore equity infusion for MSMEs through Fund of Funds

Now what is Fund of Fund?: The plan is simple. Put together a mother fund with 10,000 crores from the government. You then disburse the funds from the mother entity to smaller daughter funds in a piecemeal fashion and try and get other investors on-board these smaller funds. If all goes well, the 10,000 crores from the government should attract an additional 40,000 crores from outside investors (PE/VCs) and this should give MSMEs some much-needed funding support. They are calling it the Fund of Funds.

5) Liquidity relief measures worth Rs 30,000 crore were also announced for NBFCs, HFCs etc.

6) FM advised states and regulatory authorities for extending the registration and completion date of real estate projects under RERA to de-stress developers and ensure completion of projects for homebuyers to get their booked houses on time.

7) EPF contribution of both employer and employee has been reduced from 12% to 10%  for next 3 months.

Second tranche – Rs 3,10,000 crore (Farmers, migrant workers and street vendors.)

Major highlights:

1) Additional credit through kisan KCC: Farming in India unprofitable for nearly 2 decades. FM announced close to Rs 2 lakh crore will be given to farmers through Kisan credit cards while 2.5 crore farmers, including fishermen and animal husbandry farmers, would be able to get institutional credit at a concessional rate.

2) Due to Pandemic people have no means to restart operation once they emerge out of the lockdown. FM promised to extend working capital loans of about Rs. 10,000 to street vendors in a bid to help them get going. The ministry also said the government was looking to support 50 lakh vendors in total by setting aside 5,000 crores (10 thousand*50 lakhs).

Problem: How will you identify hawkers and street vendors? Sure, you could use identity cards (vending certificates issued to street hawkers) as a proxy. But then, only 13 lakh vendors seem to have valid identity cards. And this doesn’t take into account that we have millions of undocumented vendors scattered across the country who probably haven’t even heard about vending certificates. In fact, back in 2004, the government estimated the country had close to 1 Cr. hawkers. we have a whole lot more now. So if realistically we can only serve 13 lakh people, what’s the point of setting aside 5,000 crores? God knows!

FM introduced ‘one nation one ration card’ to allow migrant workers to buy ration from any depot in the country. A special credit facility of Rs 5,000 crore was announced to support around 50 lakh street vendors who will have access to an initial Rs 10,000 working capital.

3) 70,000 Rs allocated for Housing CLSS-MIG (Credit Link Subsidy Scheme for Middle Income Group):

It was already introduced in May 2017 and valid till March 2020 but the government has only extended it till March 2021.

How it will benefit and to whom: Best part is, if all the conditions are met then 3% or 4% credit will directly be credited in your account via DBT (Direct Benefit Transfer) so, no middleman intervention.

4) The government allowed states to fund the food and shelter facilities to migrant workers from the disaster response fund that would cost Rs 11,000 crore to the centre.

(...Continue here)


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