Indian govt announces Rs 6.3 trillion relief package to fight second Covid wave

FM extends tenure of PLI scheme for large scale electronics manufacturing till 2025-26. Announces credit guarantee scheme to facilitate loans to 25 lakh persons through Micro Finance Institutions (MFIs).
Indian govt announces Rs 6.3 trillion relief package to fight second Covid wave

Union Finance Minister Nirmala Sitharaman yesterday announced a slew of measures to provide relief to diverse sectors affected by the second wave of COVID 19 pandemic. The measures announced also aim to prepare the health systems for emergency response and provide impetus for growth and employment. 

A total of 17 measures amounting to Rs 6.29 trillion were announced. These included two measures announced earlier, i.e. the additional Subsidy for DAP & P&K fertilizers, and extension of Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) from May to November, 2021.

The measures announced today can be clubbed into 3 broad categories - economic relief from pandemic; strengthening public health, impetus for growth & employment, and economic relief from pandemic.

Eight out of 17 schemes announced here today aim at providing economic relief to people and businesses affected by the COVID-19 pandemic.  Special focus is on health and reviving travel, tourism sectors.

FM announced Rs 1.10 trillion Loan Guarantee Scheme for COVID affected sectors. Under this new scheme, additional credit of Rs 1.1 trillion will flow to the businesses. This includes Rs 500 billion for health sector and Rs 600 billion for other sectors, including tourism.

The health sector component is aimed at up scaling medical infrastructure targeting underserved areas. Guarantee cover will be available both for expansion and new projects related to health/medical infrastructure in cities other than 8 metropolitan cities. While the guarantee cover will be 50% for expansion & 75% for new projects. In case of aspirational districts, the guarantee cover of 75% will be available for both new projects and expansion. Maximum loan admissible under the scheme is Rs 1 billion and guarantee duration is up to 3 years. Banks can charge a maximum interest of 7.95% on these loans. Loans for other sectors will be available with an interest cap of 8.25% p.a. Thus, the loans available under the scheme will be much cheaper compared to the normal interest rates without guarantee of 10-11%.

The government has decided to expand the Emergency Credit Line Guarantee Scheme (ECLGS), launched as part of Aatma Nirbhar Bharat Package in May, 2020, by Rs 1.5 lakh crore. ECLGS has got a very warm response with Rs 2.73 lakh crore being sanctioned and Rs 2.10 lakh crore already disbursed under the scheme. Under the expanded scheme, limit of admissible guarantee and loan amount is proposed to be increased above existing level of 20% of outstanding on each loan. Sector wise details will be finalised as per evolving needs. The overall cap of admissible guarantee is thus raised from Rs 3 lakh crore to Rs. 4.5 lakh crore

FM announced credit guarantee scheme for micro finance institutions - a completely new scheme aimed to benefit the smallest of the borrowers who are served by the network of micro finance institutions. Guarantee will be provided to Scheduled Commercial Banks for loans to new or existing NBFC-MFIs or MFIs for on lending upto Rs 1.25 lakh to approximately 25 lakh small borrowers. Loans from banks to be capped at MCLR plus 2%. Maximum loan tenure will be 3 years, and 80% of assistance to be used by MFI for incremental lending. Interest rates will be at least 2% below maximum rate prescribed by RBI. The scheme focuses on new lending, and not on repayment of old loans. MFIs will lend to the borrowers in line with extant RBI guidelines such as number of lenders, borrower to be member of JLG, ceiling on household income & debt. Another feature of the scheme is that all borrowers (including defaulters upto 89 days) will be eligible. Guarantee cover will be available for funding provided by MLIs to MFIs/NBFC-MFIs till March 31, 2022 or till guarantees for an amount of Rs. 7,500 crore are issued, whichever is earlier. Guarantee will be provided upto 75% of default amount for upto 3 years through National Credit Guarantee Trustee Company (NCGTC)

The government has extended Aatma Nirbhar Bharat Rozgar Yojana (ANBRY), which was launched in October 2020. It incentivises employers for creation of new employment, restoration of loss of employment through EPFO. Under the scheme, subsidy is provided for two years from registration for new employees drawing monthly wages less than Rs 15,000 for both Employer’s and Employee’s share of contribution (total 24% of wages) for establishment strength upto 1,000 employees; and only employee’s share (12% of wages) in case of establishment strength of more than 1,000. Benefit of Rs 902 crore has been given to 21.42 lakh beneficiaries of 79,577 establishments under the scheme till 18.06.2021. The government has decided to extend the date of registration under the scheme from June 30, 2021 to 31 March 2022.

The government has been decided to infuse equity in Export Credit Guarantee Corporation (ECGC) over 5 years to boost export insurance cover by Rs 88,000 crore. ECGC promotes exports by providing credit insurance services.  Its products support around 30% of India’s merchandise exports. 

FM also announced the extension of tenure of Production Linked Incentive (PLI) scheme for large scale electronics manufacturing. PLI scheme provides incentive of 6% to 4% on incremental sales of goods under target segments that are manufactured in India, for a period of five years. Incentives are applicable from 01.08.2020 with base year as 2019-20. However, the companies have been unable to achieve incremental sales condition due to disruption in production activities (due to pandemic related lockdowns0; restrictions on movement of personnel; delay in installation of relocated plant and machinery; and disruption in supply chain of components. “Therefore, it has been decided to extend the tenure of the scheme launched in 2020-21 by one year i.e. till 2025-26. Participating companies will get option of choosing any five years for meeting their production targets under the scheme. Investments made in 2020-21 will continue to be counted as eligible investments,” said Nirmala Sitharaman.

 FM also announced Rs 3.03 trillion for reform-based result-linked power distribution scheme of financial assistance to DISCOMS for infrastructure creation, up-gradation of system, capacity building and process improvement. The scheme was announced in the Union Budget of 2021-22. It aims at state specific intervention in place of “one size fits all”. Participation in the scheme is contingent to pre-qualification criteria like publication of audited financial reports, upfront liquidation of State Government’s dues/subsidy to DISCOMS and non-creation of additional regulatory assets. Under the scheme, it is aimed to provide assistance for installation of 25 crore smart meters, 10,000 feeders, 4 lakh km of LT overhead lines. Ongoing works of IPDS, DDUGJY and SAUBHAGYA will also be merged in the scheme. Total outlay for the scheme is Rs 3.03 trillion, out of which the Central Government’s share will be Rs 976.31 billion. The amount available under the scheme is in addition to the allowed additional borrowing of 0.5% of Gross State Domestic Product which will be available to the States annually for the next four years subject to carrying out specified power sector reforms. The amount of borrowings available this year for this purpose is Rs 1.06 trillion.

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