#Dr.Radhika Pandey (Consultant,
National Institute of Public Finance and Policy)
India’s GDP for the Oct-Dec quarter was 4.7%. For Jan-March
quarter, the growth was a modest 3.1%. For the full year (FY20), the GDP growth
was estimated at 4.2%. The two key drivers of employment: manufacturing and
construction reported a nill(0% growth) and construction sector reported a
growth of 1.3% compared with a growth of 5.7% and 6.1% respectively lin the
previous year. The only silver lining is agriculture which grew at 4% in
2019-20 as compared to 2.4% in 2018-19. On the spending side, Gross Fixed
Capital Formation(GFCF) contracted by 0.4% as against a growth of 14.5% in
2018-19.
Fragile Fiscal
Situation:
·
Deviation from the fiscal deficit target: Government of India
raised the target from 3.3% to 3.8%.
·
The actual deficit came in at 4.6% as per the provisional
actuals.
·
The government’s net tax revenue fell by Rs.1.5 lakh crore as
compared to the revised estimates.
·
As compared to the previous year, the Gross Tax Revenue fell
by 3.4% in 2019-20.
Lock down
Strategy:
- India with its limited health
care infrastructure and dense population chose to shut down activities.
- With lockdown there was a
complete collapse of demand except for food and essential like medicines.
- Manufacturing and Services
sector were worse hit.
Taking insight from the PMI Manufacturing and PMI Services,
IIP
contracted by 17% in March. For the month of April, Government held back the
industrial production data owing to the fact that a number of units reported
nil production due to the nation-wide lockdown.
- Electricity consumption fell
by 19% in the first month of lockdown.
- Maruti recored zero sales in
April.
- Tourism, Hospitality adversely
impacted.
- Merchandise exports contracted
by 60%, imports by 58.9% in the month of April. In May, the pace of
contraction in exports eased to 38%.
- Core sector industries
contracted by 37% in April and 23% in May.
- Only silver lining is
agriculture: Record rabi harvest and satisfactory pace of Kharif sowing.
Early signs of
recovery
- PMI Manufacturing Index shot
up to 47.2% in June 2020.
- GST collections stood at
90,917 crore in June 2020.
- June unemployment eased to 11%
from 23.48% in May 2020. Rural unemployment witnessed a sharper decline.
Adverse impact
on MSME
- Adversed impact on business
due to Shortage of Labour supply.
- Share in outstanding bank
credit has declined.
- Covid is considered as the
fourth shock to this sector after Demonitization, GST, NBFC crisis.
- A large chunk of MSMEs (45% as
per recent survey) still dependent on informal sources of credit.
Policy responses
to COVID-19
- Pradhan Mantri Garib Kalyan
package.
- Atma Nirbhar package.
- Interest rate cuts
- Unconventional liquidity
enhancing measures.
Policy response:
Liquidity enhancing measures.
- Long term repo operations.
- Targeted long term repo
operation (TLRO)
- Targeted long term repo
operations 2.0
- CRR reduction
- Enhanced borrowing thorught
MSF window.
Latest Monetary Policy Committee
meeting
- Policy rate (repo rate) was cut to 4% from
4.4%.
- Reverse repo rate was adjusted to 3.35%
- Refinance facility of Rs.15,000 crore for SIDBI
for 3 months is rolled over for another 3 months.
- Liquidity facility for EXIM Bank to the turn of
Rs.15,000 crore.
- Moratorium extended till 31st
August.
Government’s Economic Package
Pradhan
Mantri Garib Kalyan Package: Rs.1.7 Lakh crore.
·
Distribution
of free food grains.
·
Cash
payments to women Jan Dhan Account holders.
·
Front-loading
of payments to farmers under PM-Kisan.
·
Payments
to poor senior citizens, poor windows and poor disabled.
·
Insurance
scheme for health workers.
·
Increase
in MNREGA wages.
·
Relief
to construction workers through Building and Construction Workers Welfare Fund.
Atma Nirbhar
Package roughly amounting to Rs.10 lakh crore
·
Announcements
were made in five tranches with a mix of sovereign guarantees, liquidity
support and long term structural reform measures.
·
This
was a not primarily about fiscal spend of Rs.10 Lakh crore.
·
Actual
fiscal outlay not more than Rs.2 Lakh crore (1-2% of GDP).
·
The
measures announced on day one included Rs.3 Lakh crore of uncollateralized
loans for MSMEs, Rs.20,000 crore subordinate debt for stressed MSMEs and
Rs.50,000 crore equity infusion through MSME Fund of Funds.
·
A
look at the fine print tells us that for subordinate debt for MSMEs, the
government’s fiscal outlay is Rs.4000 crore (To be given to CGTMSE that will in
turn provide partial credit guarantee support to farmers)
·
For
the MSME Fund of Funds, the government will spend Rs.10,000 crore for setting
up of the fund.
·
Out
of the Rs.3.7 Lakh crore package for MSMEs the actual fiscal
Other measures
announced under the first tranche
·
Other
measures include revision in the definition of MSMEs and prohibition on global
tenders up to Rs.200 crore.
·
A
unit with up to Rs.1 crore investment and Rs.5 crore turnover will qualify as a
micro unit, investment up to Rs.10 crore and turnover up to Rs.50 crore will
qualify as a small unit, and investment up to Rs.50 crore will qualify as a
small unit, and investment up to Rs.50 crore and turnover up to Rs.250 crore
will qualify as a medium enterprise.
·
Liquidity
support for NBFCs: liquidity scheme of Rs.30,000 crore and partial credit
guarantee.
·
EPF
support for 3 more months.
·
Liquidity
support to Discoms
·
Cuts
in TDS.
Measures announced
in the second tranche
Farmers, migrant workers and
street vendors
·
Food
grain supply to migrants.
·
Interest
subvention of 2% for Shishu loans.
·
Relief
for street vendors through a credit facility of Rs.5000 crore.
·
Employment
generation initiatives.
·
Measures
for farmers: Rs.2 lakh crore of concessional credit and Rs.30,000 crore working
capital funding through NABARD.
Measures announced
in the third tranches
(Focus was on agriculture)
·
Rs.1
Lakh crore agri-infrastructure fund.
·
Initiatives
to strengthen fisheries value chain.
·
Initiative
to address supply chain disruption: TOP to TOTAL, Rs.500 crore.
·
Control
of animal disease, animal husbandry infrastructure, micro food enterprises,
promotion of herbal cultivation.
·
A
Central Law to reduce farmer’s dependence on APMCs: Farmers will not be bound
to sell their produce in Mandis, can sell freely to FPOs, Co-operatives.
Measures announced
in the fourth tranches
Focus was on long
term structural reforms with greater private sector participation
·
Private
sector participation in coal sector: Commercial mining.
·
Private
sector participation in minerals sector.
·
Self-reliance
in defence production.
·
Indigenization
of imported spares;
·
FDI
limit in the defence manufacturing under automatic route will be raise from 49%
to 74%
·
Airport
up gradation and modernization: Six airports through PPP.
·
Privatization
of power discoms.
·
Private
sector participation in social infrastructure through viability gap funding of
Rs.8100 crore.
Measures announced
in the fifth tranche
·
Additional
Rs.40,000 crore through MGNREGA
·
Health
reform initiatives.
·
IBC
related measures.
Focus is on developing the rural
economy
- Reverse migration is in full swing so emphasis
is on developing the rural economy.
- Enhancement of financing for MGNREGA by Rs.40,000
crore.
- Host of initiative for development of agri and
allied activities.
- Reform of agriculture produces marketing.
- To promote barrier free Produce Trade and
Commerce (Promotion and Facilitation) Ordinance 2020
- This will pave the way for an ecosystem where
farmers and traders will have freedom of choice of sale and purchase of
agri produce. The age-old practice of selling in licensed mandis will
give way for more flexibility is sale options for farmers.
- Impetus to contract farming: The farmers (Empowerment
and Protection) Agreement on Price Assurance and Farm Services Ordinance,
2020 to empower farmers to engage with processors, large retailers and
exporters.
- Amendments to Essential Commodities Act.
- Rs. 8 Lakh crore provided by RBI through
liquidity measures and refinance.
- The actual fiscal outlay of the government’s
package is not more than 1-2% of GDP.
- That seems a prudent strategy: At a time when
revenues are collapsing.
- Government has enhanced its borrowings by Rs.4
Lakh crore.
- That is not sufficient to finance a big bang
fiscal package.
- States have been given greater leeway to borrow
upto 5% of GDP.
- Situation is uncertain and still evolving;
government cannot afford to exhaust its ammunition in the first two months
of the fiscal year.
- Emphasis has been on improving liquidity to
enable business to kick start activity.
- Interest rate cuts by RBI may not result in
greater lending by banks.
- Banks have become risk averse.
- Demand is also low.
- Banks are parking funds with RBI under reverse
repo transactions even after RBI has cut reverse repo rate.
- While banks have reduced rates, credit spread
for low rated borrowers remains high.
- Periodic review of the measures announced is
necessary: are genuine MSMEs getting loan?
#Dr.Badri Gopal Krishnan
(Affiliated faculty Member, University of Washington-Seatle Consultant, The
World Bank Group, Co-Founder and Partner, Infinite Sun Modeling LLC)
#Prof.Ravikant Swami (Director,
Delhi Metropolitan Education (GGSIPU))
