A Rs3 lakh crore emergency credit facility targeted at small enterprises will now be extended to professionals such as doctors and chartered accountants as well to help them tide over the crisis triggered by the coronavirus disease (Covid-19), finance minister Nirmala Sitharaman said on Saturday, warning that the timing of a full economic recovery is tough to predict when the pandemic is still to play itself out. The government estimates that around Rs1 lakh crore of the facility would be used by the professionals.
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“Some pockets are still under containment… decided by states, which is the right thing as states are better placed to judge [the ground situation]. We appreciate that,” Sitharaman said at an interaction with media in North Block. “But there are disruptions in the value-chain which is not just confined to raw materials. It also involves manpower [movement] and outsourcing of services. Hence,it is difficult to do an assessment [of a full economic recovery].”
She said migrant workers who had left the cities for their homes in the hinterland after the lockdown was enforced on March 25 to curb the spread of the disease were returning to work in one positive development for the economy. “Some of them [workers] have approached their employers… One-two industrial groups have made arrangements to bring them back,” she said.
Prime Minister Narendra Modi is getting regular feedback on the economic situation and the government is keeping all options open to facilitate a faster economic recovery, Sitharaman said. Even so, the government is cautious about overstating the green shoots of a recovery visible in the economy, she added.
Sitharaman said the Rs3 lakh crore emergency working capital loan scheme meant for Micro, Small and Medium Enterprises (MSMEs) had attracted significant response and its scope has been expanded at the request of industry so that more units and individual professionals can get financial support as well.
“After consultations with stakeholders and taking into account the remaining headroom under the scheme, it is decided to include individual loans for business purposes within its ambit,” she said. The scope of the Emergency Credit Line Guarantee Scheme (ECLGS) has also been expanded in line with the revised definition of MSMEs and the cap on funding under the scheme doubled from Rs5 crore to Rs10 crore.
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This is the latest in a string of stimulus measures announced by the Modi government to cushion the impact of the coronavirus disease pandemic, which struck at a time when a slowdown in householding spending and corporate investment had already become a drag on economic growth, which decelerated to 4.2% in fiscal 2019-20, the slowest pace in 11 years.
It follows precipitous growth contractions reported by the US and European countries after the pandemic closed shops, factories and restaurants, signalling a period of recession. The US economy posted a second-quarter contraction of 9.5%, the worst figure on record. Europe as a whole saw GDP fall by 12.1% in the Eurozone and 11.9% across the bloc. Most economists expect India’s economy to shrink by at least 5% this financial year.
India’s gross domestic product numbers for the April-June quarter are expected at the end of August; for two of those months, the country was under a hard lockdown, and that is expected to have taken its toll on Asia’s third largest economy.
ECLGS is one of the key components of the Rs20 lakh crore economic stimulus package under the Atmanirbhar Bharat Abhiyan (Self-Reliant India Initiative) launched in mid-May, which offered additional working capital finance of 20% of the outstanding credit as of February 29, 2020 in the form of a term loan to units with up to Rs25 crore outstanding and revenue of up to Rs100 crore.
Explaining the amended eligibility criteria Debashish Panda, secretary in the department of financial services (DFS) said, “It is decided to increase the upper ceiling of loan outstanding from Rs25 crore to Rs50 crore, and to increase the annual turnover ceiling from Rs100 crore to Rs250 crore in line with the new definition of MSME.”
The Cabinet on June 1 raised the upper limit of turnover for a MSME to Rs250 crore.
As of July 29, over Rs1.36 lakh crore had been sanctioned and Rs87,227 crore disbursed under ECLGS, Panda said. “We expect some headroom of about Rs1 lakh crore under the scheme that could be used by individual professionals. For example, a doctor can avail this facility to purchase diagnostic equipments, etc,” he said.
CA Vijay Kumar Gupta, former Central Council Member of the Institute of Chartered Accountants of India (ICAI), said the move to extend the emergency credit benefit to professionals was positive.
“But the government should take more measures to boost demand. Unless there is demand for goods and services, businesses would not take loans. They will take loans only if they are sure of their ability to repay,” he added.
Sitharaman said the process of government stake sales in Air India and Bharat Petroleum Corporation Ltd (BPCL) was underway, and she was confident of meeting the government’s target of raising Rs2.1 lakh crore in disinvestment proceeds during fiscal 2020-21.
In May, the government announced an elaborate disinvestment strategy along with the Rs20 lakh crore stimulus package. The strategy aims at capping the number of public sector companies in strategic sectors at four. It proposed to eventually disinvest state-owned firms in the non-strategic segments.
Sitharaman said the Cabinet will soon decide which public sector units would come in the strategic sectors.
In order to define the strategic sector, the government will soon announce a new public sector enterprises policy, government officials said, requesting anonymity.
To provide relief to the industry, the government is in talks with the Reserve Bank of India (RBI) on various matters, Sitharaman said.
Industry has been demanding a one-time loan restructuring; private banks are not in favour of extending loan moratoriums any further, out of concern that even borrowers capable of paying back loans may be dissuaded from doing so in case of an extension. RBI’s Monetary Policy Committee (MPC) is scheduled to meet next week.