Finance Minister Nirmala Sitharaman on Monday announced some fresh relief measures for the economy, the first such package after the second COVID-19 wave, focusing largely on extending loan guarantees and concessional credit for pandemic-hit sectors and investments to ramp up healthcare capacities.
The government pegged the total financial implications of the package, which included the reiteration of some steps that were already announced such as the provision of food grains to the poor till November and higher fertiliser subsidies, at ₹6,28,993 crore.
Economists, however, noted that the elements of direct stimulus in the package and its upfront fiscal costs in 2021-22, are likely to be limited. More stimulus steps may be needed to shore up the economy through the rest of the year, they said.
Calling the measures an effort to stimulate growth, exports and employment as well as provide relief to COVID-affected sectors, Ms. Sitharaman announced an expansion of the existing Emergency Credit Line Guarantee Scheme (ECLGS) by ₹1.5 lakh crore. She also announced a new ₹7,500 crore scheme to guarantee loans upto ₹1.25 lakh to small borrowers through micro-finance institutions.
She also unveiled a fresh loan guarantee facility of ₹1.1 lakh crore for healthcare investments in non-metropolitan areas and sectors such as tourism. A separate ₹23,220 crore has been allocated for public health with a focus on paediatric care, which will also be utilised for increasing ICU beds, oxygen supply and augmenting medical care professionals for the short term by recruiting final year students and interns.
Indirect support for exports worth ₹1.21 lakh crore over the next five years, free one-month visas for five lakh tourists, new seed varieties for farmers and additional outlays over the next two years to expand broadband to all Gram Panchayats, were also included in the package.
The existing sop to spur employment, where the government bears EPF contributions for new employees earning less than ₹15,000 a month for two years, has been extended till March 31, 2022.
“Setting aside the guarantee schemes and the announcements that had already been made earlier, the step up in the fiscal outgo within 2021-22 based on the fresh announcements is estimated at around ₹60,000 crore,” said Aditi Nayar, rating agency ICRA’s chiefeconomist.
Economist D.K. Srivastava reckoned that the additional burden on the 2021-22 Budget from the ‘three direct stimulus initiatives’ — providing free foodgrains, incremental health projects’ spending, and rural connectivity — would be ₹1,18,390 crore or 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,” he said, adding that this package is focused on stimulating the ‘sagging credit offtake growth’ through interest rate concessions for priority sectors.
“This will benefit a number of MSMEs, small borrowers and entrepreneurs in contact-intensive sectors,” he said.
Ms. Nayar said the success of the enhanced credit guarantee schemes worth ₹2.6 lakh crore for pandemic-hit sectors will hinge on their offtake. “Schemes worth ₹2.4 lakh crore are spread over the next two to four years. However, some of these had already been announced at the time of the Budget, and therefore, a portion of their cost has already been factored in,” she said.
“Although the total impact amount seems large at nearly ₹6.29 lakh crore, a large portion of this is by way of credit guarantee schemes where there is no immediate outflow. The impact on the fiscal deficit will be limited while the stock markets could give a mild positive reaction,” said HDFC Securities managing director and CEO Dhiraj Relli.
Of the new ₹1.1 lakh loan guarantee scheme, ₹50,000 crore will be earmarked for the healthcare sector alone.
“A maximum loan of ₹100 crore will be given with a capped interest rate of 7.95% (for healthcare projects) and guarantee provided for three years. Without a guarantee, it would have cost 10%-11%,” Ms. Sitharaman said, stating that the interest will be cappedat 8.25% for other sectors.
The balance ₹60,000 crore will be earmarked for other sectors, including a plan to support over 11,000 registered tourist guides and travel agencies so they can survive the second wave’s adverse effects. Working capital or personal loans will be provided to people in the sector to discharge liabilities and restart businesses affected by COVID-19. Loans will be provided with a 100% guarantee under the scheme to be administered by the Ministry of Tourism.
“As they progress, we will evolve the description and coverage of the scheme as their needs evolve,” the Minister said.
Separately, large electronics manufacturers under the Production-Linked Incentive scheme have been granted an additional year to meet their production targets as many of them struggled to sustain or scale up operations due to restrictions and lockdowns to curb the second COVID-19 wave.