Nirmala Sitharaman Unveils First Set Of Measures Under Covid-19 Relief Package

Finance Minister Nirmala Sitharaman announced on Wednesday the first set of relief measures under the government’s Atmanirbhar Bharat Abhiyan—India’s Rs 20 lakh crore Covid-19 economic package. Small businesses, non-bank lenders and power distribution companies formed the central agenda of today’s announcements.

Here are the key highlights:

• Collateral-free loans, backed by the central government, of up to Rs 3 lakh crore have been introduced for MSMEs.
• Up to Rs 20,000 crore liquidity support through subordinate debt for stressed MSMEs.
• A fund of funds of up to Rs 50,000 crore for equity support to MSMEs with growth potential.
• Definition of MSMEs has been revised.
• EPFO support provided by central government has been extended for another three months till August.
• A special liquidity scheme of up to Rs 30,000 crore has been announced for NBFCs, housing financiers and microfinanciers.
• Partial credit guarantee scheme for NBFCs has been expanded.
• Power distributor companies will be given a liquidity injection of Rs 90,000 crore to pay off their dues to power generation firms.
• Real estate developers allowed to invoke ‘force majeure’ clause and extend registration and completion dates by six months.
• Rates for tax deducted at source and tax collection at source have been reduced.
• Due date for filing income tax returns have been extended.

Read further for more details on each announcement.

Finance Minister said that a comprehensive vision for the economy was laid out after discussion with several sections of the society.

Inputs obtained were given due consideration while preparing the package for the country. Essentially the package is to spur growth, and make India self-reliant, Sitharaman said.

The Finance Minister said that the package addresses issues of ease of doing business, compliance and due diligence observed. The intention is to build brands, take local brands and take them to a global level.

Finance Minister tried to allay concerns of protectionism by India by saying that a self-reliant India does not mean the country will cut itself off from the world.

• Rs 52,606 crore transferred to 41 crore Jan Dhan bank account holders.
• Rs 18,000 crore worth grain and pulses distributed to ration cardholders.

The finance minister announced that small and medium enterprises will be offered collateral-free automatic loans of up to Rs 3 lakh crore to help them resume business and safeguard jobs.

MSME borrowers which have up to Rs 25 crore outstanding loans and a turnover of Rs 100 crore will be eligible for these loans.

These loans will have a 4-year tenor and a moratorium will be given for 12 months.

A 100 percent credit guarantee will be given to banks and NBFCs by the government on the principle and interest amount of the loans.

The scheme can be availed till Oct. 31, 2020.

This will benefit up to 45 lakh units, Sitharaman said.

The government will facilitate up to Rs 20,000 crore liquidity as subordinate debt for stressed MSMEs which are in need of equity support.

All non-performing assets and stressed MSMEs will be eligible for it, Sitharaman said. The government will provide a support of Rs 4,000 crore to the CGTMSE which will then provide partial credit guarantee to banks.

This is likely to benefit 2 lakh MSMEs. The promoters will be given debt by banks, which will then by infused by promoters as equity in the company.

The government will provide equity funding for MSMEs with growth potetial through a fund of funds with a corpus of Rs 50,000 crore.

The fund will be operated through a mother fund and a few daughter funds, Sitharaman said. This will help MSMEs expand in size and capacity. It will also encourage them to get listed, she said.

The definition of MSMEs will be revised and the investment limits will be increased, Sitharaman said.

There has been a long-pending demand for the revision, she said.

An additional criteria of turnover is also being introduced for MSMEs. The distinction between manufacturing and service sector MSMEs will be eliminated.

• Businesses with investment up to Rs 10 crore, and turnover up to Rs 50 crore to be classified as small business.
• Businesses with investment up to Rs 20 crore, and turnover up to Rs 100 crore to be classified as medium business.

Here’s how the existing and revised classification looks like:

Global tenders will be disallowed for government procurement for up to Rs 200 crore.

This will make MSMEs do their business with a lot of confidence, Sitharaman said. This will also boost the Make In India program, she said.

The finance minister said that all MSME receivable from government-run firms will be paid off in 45 days.

The government has extended the EPF support of up to Rs 2,500 crore for another three months.

Under the PM Garib Kalyan Yojana, payment of 12 percent of employer and 12 percent employee contribution was made into the EPF accounts of eligible establishments. This support was offered till May.

Now the same is being extended for June, July and August.

In order to provide more take-home salary, statutory provident fund contribution for employees not covered in the earlier announcement will be lowered for both employees and employers to 10 percent from 12 percent, Sitharaman said.

This will continue to be 12 percent for government firms. Government employees will pay 10 percent.

The finance minister has announced a special liquidity scheme of up to Rs 30,000 crore for non-banking financial firms.

Under the scheme, investment will be made in both primary and secondary market transactions in investment-grade debt of NBFCs, housing financiers and microfinance firms.

The securities will be fully guaranteed by the government of India.

The government has widened the ambit of its partial credit guarantee scheme for NBFCs.

Up to Rs 45,000 crore liquidity infusion will be provided through the expanded scheme.

The finance minister has announced a Rs 90,000 crore liquidity injection for power distribution companies, where revenues have plummeted.

The liquidity will be infused by the Power Finance Corporation and Rural Electrification Corporation, Sitharaman said.

The loans will be given against state guarantee for exclusive purpose of clearing of discoms’ liabilities to the power generators.

Central Public Sector Generation companies will give rebate to discoms which will be passed on to the customers.

All contractors to central agencies like railways, road ministry, central public works department can be given an extension of up to 6 months without any additional costs.

This covers construction works and goods and services contracts.

It will cover obligations including completion of work, intermediate milestones and extension of the concession period.

The government has said that developers can now invoke a Force Majuere clause under the Real Estate Registration act.

By invoking Force Majuere they can extend their registration and completion date suo-moto by six months for all projects that were expiring on or after March 25. Fresh project registration certifications will be issued automatically with new timelines.

The government has reduced the rates of tax deduction at source for non-salaried payments made to residents and tax collection at source for specified reciepts will be reduced by 25 percent of the existing rate.

Sitharaman said that if the tax was Rs 100 earlier then it would now be Rs 75.

This reduction will come into effect from May 14 and will last till March 31, 2021.

The payment of contract, professional fees, interest, rent, dividend, commission and brokerage shall all be eligible for the reduced rate.

The due date of all income tax returns for FY20 will be extended to Nov. 30, 2020 from July 31 and Oct. 31 earlier. Due date for tax audit will be extended to Oct. 31 from Sept. 30 earlier.

Date of assesments getting barred on Sept. 30, 2020 has now been extended to Dec. 31, 2020. Those getting barred on March 31, 2021 will be extended to Sept. 30, 2021.