GoI Rolls Out A Slew Of Measures To Support Corporate India
On Wednesday, the Financial Minister rolled out a slew of measures to support the domestic economy, which is facing an unprecedented degree of stress in the face of the COVID-19 pandemic.
A large cross-section of the gargantuan 20,000 Crore relief package is aimed at providing a viable lifeline to MSME’s (Micro, Small & Medium Size Enterprises). MSME’s form the backbone of the Indian economy, and are amongst the worst hit during this time. To begin with, the government has rejigged the definition of an MSME, with the intent of bringing more companies into the fold. Per the announcement, all pending tax refunds and dues shall be issued immediately. Rs. 3 Lakh Crores with of Automatic Collateral Loans were announced, with a 4-year tenor and a 12-month moratorium on principal repayment. Additionally, the GoI announced that it will facilitate a provision of Rs. 20,000 Crores as subordinate debt for stressed MSME’s.
In another first, the GoI announced that it would be setting up a 50,000 Crore Fund of Funds to infuse equity into MSME’s with growth potential and viability. This would undoubtedly help many MSME’s expand sin ize as well as capacity, without incurring any additional burden of debt. The exact nature of the administration of this Fund of Funds is yet to be disclosed.
Furthermore, a Special Liquidity Fund with a sovereign guarantee for NBFC’s, HFC’s and MFI’s of Rs. 30,000 Crores was announced by the FM. This facility will act as a much-needed confidence booster for fixed income markets, which are still reeling from the shock of the wind up of 6 debt funds by a leading asset management company last month. The Rs. 45,000 Partial Credit Guarantee “2.0” scheme for NBFC’s HFC’s and MFI’s with low credit ratings will benefit enterprises with sub-AA or unrated papers. Another 90,000 Crore liquidity injection was announced for Power Distribution Companies, whose revenues have dropped off sharply in the face of the pandemic.
Providing a major fillip to Real Estate developers, the GoI has also extended the timeline for project completions and registration by half a year. Since construction activity has come to a veritable standstill pan India, this will help reduce stress on developers to a significant extent. Unfortunately, home buyers will have to wait that much longer to receive possessions now, but this was an inevitable and unavoidable fallout of the pandemic in any case.
At a personal level, reduction in TDS rates by 25% will help put more money in the hands of individuals. However, taxpayers should keep in mind that a TDS reduction is not akin to an increase in taxable income, but a mere postponement of tax dues.
Equity markets had already rallied intraday in anticipation of the event, with the NIFTY having risen 2.03% to close at 9383 points. The SGX NIFTY, trading at 9,444 at the time of writing this, indicates that the news had been received favourably. Ultimately, the efficiency of execution will determine the real impact of the package over the next few months.
