Health, tourism focus of fresh relief booster
The government on Monday announced a ₹6.28 lakh crore economic stimulus and relief package focusing on enhancing healthcare facilities, particularly those for children, providing inexpensive credit to small firms, including those in the tourism, agriculture, and exports sectors, and incentivising foreign tourists by temporarily waiving visa fees. This is the fourth such package being announced by the government since last year to provide relief to individuals and enterprises, and boost the economy in the wake of the Covid-19 pandemic.
Announcing the relief package , Finance minister Nirmala Sitharaman said: “Today we announce some relief measures. There are eight such measures being announced under the category of relief; four of which are absolutely new. There is one item which is specific to health infrastructure...”
The stimulus measures have been announced as the second wave of the Covid-19 pandemic ebbs and states are easing restrictions on movement and activities. The Indian economy continues to regain momentum and the Nomura India Business Resumption Index (NIBRI) rose for a fifth consecutive week to 86.7 for the week ending 27 June from 80.7 the previous week. The latest NIBRI value is the highest since the week ending April 11, when it was at 88.4. NIBRI fell sharply from these levels to just 60.3 in the week ending May 23, a result of re-imposition of lockdown restrictions in most part of the country.
Still, the second wave is expected to have a lingering effect on the economy, necessitating relief and stimulus measures. Global rating agency S&P on Friday lowered India’s GDP growth forecast to 9.5% in the current fiscal year compared to its prediction of 11% in March, just before the second wave.
Sitharaman on Monday raised the total corpus of Emergency Credit Line Guarantee Scheme (ECLGS) from ₹3 lakh crore to ₹4.5 lakh crore. The ₹3-lakh-crore ECLGS was one of the key components of the ₹20-lakh-crore economic stimulus package announced last May that offered additional working capital finance in the form of an easy term loan to small firms.
She launched a new ₹1.1 lakh crore loan guarantee scheme for Covid affected sectors with ₹50,000 crore dedicated to improving health infrastructure in non-metropolitan cities at a maximum interest rate of 7.95% compared to prevailing interest rates of 10-11%. The balance 60,000 crore is fund is meant for other sectors, with the interest rate capped at 8.25% per annum, she said.
Loans would also be provided from the corpus to both tourism companies and recognised tourist guides, she said. In order to boost tourism, on request of the industry, the government has allowed free tourist visa to 5 lakh tourists up to March 31, 2022. Tourism, an important economic activity, has been devastated by Covid-19 pandemic since March 2020. In 2019, 10.93 million foreign tourists visited India and spent $30.1 billion on leisure and business. With international travel restrictions in place, there has been almost no inbound travel, although the lull between the first wave and the second saw a sharp spike in domestic tourism.
In order to provide relief to 2.5 million small entrepreneurs, the finance minister also announced a new credit guarantee scheme with a corpus of ₹7500 crore to facilitate loans up to ₹1.25 lakh through micro finance institutions (MFIs). “Interest rate on loans from banks will be capped at MCLR [Marginal Cost of Funds Based Lending Rate] plus 2%,” she said. “The measure is designed to provide a safety net, especially to small borrowers. However, the coverage at only 2.5 million individuals will need to increase to generate the desired impact,” said Shravan Shetty, MD at consultancy firm Primus Partners
An ongoing scheme – the Atmanirbhar Bharat Rozgar Yojana – has also been extended from June 30, 2021 to March 31, 2022. The scheme was launched in October 2020 to incentivise employers to create new jobs Sitharaman said. The scheme is implemented through the Employees Provident Fund Organisation (EPFO), with the government sharing part of the financial burden of the employers as an incentive to hire more workers.
The stimulus also provided for an additional ₹14,775 crore for nutrient-based subsidy to farmers, the finance minister said. The amount includes, ₹9,125 crore additional subsidy for DAP (di-ammonium phosphate) and ₹5,650 crore additional subsidy for NPK (nitrogen, phosphorus, and potassium) based complex fertilizer.
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The package also extended the Pradhan Mantri Gareeb Kalyan Anna Yojana (PMGKAY) which provides 5 kg food grain to the poor, up to November. Announced last month, the extension has a financial implication of ₹93,869 cr. It was first launched on March 26, 2020 and the total cost of the scheme in 2020-21 was ₹133,972 crore.
In order to augment health infrastructure for children -- vaccines for them are yet to be approved -- the finance minister dedicated a ₹23,220 crore additional fund for public health. “New scheme focused on short term emergency preparedness with special emphasis on children and paediatric care/paediatric beds,” she said. the scheme involves funding for short-term human resource augmentation, increasing ICU beds and oxygen supply.
The other announcements to boost growth and employment included, a ₹33,000 crore boost to project exports through National Export Insurance Account (NEIA), ₹88,000 crore infusion in Export Credit Guarantee Corporation (ECGC) over five years to boost insurance cover for merchandise exports, ₹19,041 crore on broadband connectivity to villages through BharatNet, extension of tenure of productivity-linked incentive (PLI) scheme for large scale electronic manufacturing for one year till 2025-26, a ₹97,631 crore incentives to states for reform-based result-linked power distribution reform as announced in the budget, and the introduction of new streamlined process for asset monetisation and public-private-partnership (PPP) projects. The finance minister said that the current process for approval of PPP projects is long and involves multiple levels of approvals.
DK Srivastava, Chief Policy Advisor at EY India termed it as the government’s first fiscal stimulus package for 2021-22 as part of its first response to “the deleterious impact of Covid’s second wave” on the economy, and explained that the “the direct stimulus however is limited to three main initiatives”. These are the extension of the distribution of free food grains under PMGKY, with an estimated cost of ₹93,869 crore; additional health sector expenditure amounting to ₹23,220 crore of which centre’s share would be ₹15,000 crore; and expanding BharatNet at an additional expenditure of ₹19,041 crore spread over 2 years starting 2021-22 . He added that the total additional burden on the 2021-22 budget from these three initiatives would be ₹1,18,390 crore. “This amounts to about 0.5% of estimated GDP for 2021-22.”
“Although this is a limited magnitude of direct stimulus, it would be desirable to follow it up with another dose of stimulus later in the year. In addition, government would do well to ensure that the budgeted capital expenditure for 2021-22 is spent in the earlier part of the financial year so as to generate benefits of frontloading of expenditures,” Srivastava said. .