Indian Government announces the second stimulus package to combat the economic crisis- Here’s all you need to know

In our previous article, we had suggested that the government will be out with a Part II of its Fiscal Stimulus when the lockdown starts to ease over – and here we are. Yesterday, our Honourable Prime Minister announced the Stimulus package of Rs. 20 Lakh Crores and today our Finance Minister shared its contours. Here are the details:

What are the basis of this new fiscal package?

“Atma Nirbhar Bharat Abhiyan” :  essentially to spur growth and bring self-reliance to India, with focus on 5 Pillars.

1. Economy
2. Infrastructure
3. Technology Driven Systems
4. Demographics
5. Demand

Is everything announced today?

No, the total relief package is of Rs 20 Lakh Crores. Some of which has already been announced through RBI schemes and Govt. stimulus package of 1.7 Lakh Crores announced earlier. Today we are seeing a part of this being announced. More relief and more stimulus will be announced in the coming days.

What has the focus been on today’s announcements?

15 Packages have been announced today by the FM, in aggregate covering different sectors

What has been the announcements for MSMEs?

Six Packages are for MSME, as under:

1. Collateral free automatic loan of Rs. 3 Lac Crores in aggregate
   • Eligibility Rs.100 cr turnover and upto Rs.25 Cr loan outstanding
   • No guarantee, no collateral, 1 year moratorium, 4 year tenure
   • The above one is for normal Standard MSMEs
   • Loan – upto 20% of outstanding limit
2. Sub-ordinated Debt of Rs.20, 000 Crore – for Stressed / NPA MSMEs
   • 2 lac MSMEs are likely to benefit
3. Fund of Fund with corpus of Rs.10,000 crore for infusion as Equity (worth Rs.50,000 crore) into high performing MSMEs – those who have potential and viable.
4. New Definition of MSMEs – Criteria eased; No difference between Mfg & Services
   • Investment in P&M, Equipments – Micro (upto Rs.1 crore); Small (upto Rs.10 crore); Medium (upto Rs.20 crore)  AND
   • In terms of Turnover – Micro (upto Rs.5 crore); Small (upto Rs.50 crore); Medium (upto Rs.100 crore)       So, many entities will fall under MSMEs new definition and can take big advantage of it.
5. Govt procurement tenders upto Rs.200 Crore will not be allowed Global tenders. They shall be served by MSMEs and thereby facilitate local companies become global gradually.
6. E Market linkages be provided to all MSMEs so that they can do business with ease and participate in e-fairs, e-exhibitions, etc. Further, within next 45 days, GOI and CPSU (Central Public Sector Undertaking) – will clear all outstanding receivables.

What has been the key relief in Provident Fund area?

Two Packages for EPF:

1. Liquidity relief for all EPF establishment – 12% contribution by employer and employee – extension of support from 3 months to 6 months (i.e March to Aug 2020). Govt will pay this contribution of 24% (12%+12%) on behalf of employer and employee.
   • This will result in outflow of Rs.2500 crore
2. For increasing cash in hand salary for employee – 12% contribution (both employer and employee) is reduced to 10% for Private entities only – ie. 24 has become 20. However, for PSU entities – it shall be 12% employer and 10% employee.
   • Impact of Rs.6700 crore

What has been the announcements for NBFCs, HFC & MFIs?

Two Packages for NBFCs, HFC & MFIs –

1. Special Liquidity Scheme of Rs.30,000 crore for buying debt papers of Investment Grade (need not be high grade). Such debt paper will be fully guaranteed by GOI.
2. Liquidity infusion through Partial Credit Guarantee Scheme worth Rs.45,000 crore (first 20% loss will be borne by GOI). Even poor rating papers and unrated ones will also be included.

Any relief for Dis-coms?

Yes . One time Liquidity emergency Injection of Rs.90,000 Crore to all dis-coms against all their pending receivables. They in turn will be able to clear dues to Generating companies. PFC and REC will infuse on the basis of State Guarantees. The benefit to be passed on by dis-coms to customers.

Any breathing space provided to Contractors?

Of course. Upto 6 month extension without any penalties – covers construction works, railways, roads, etc. Concession period in PPP contracts is also being extended by upto 6 months. Partial release of BG shall be done proportionately so as to support cash flows of the contractor.

What has been the key announcements for players in Real Estate sector?

Covid’19 can be treated as force majeure clause. Thus, by suo motto – extension of registration and completion dated by 6 months (cut-off date – 25^th March 2020). They can submit the revised timelines. No individual applications need to be made. This shall enable real estate developers to get de-stressed little bit, hopefully.

What are the major announcements in Direct Taxation?

There are five of them, as explained below:

1. Reduce TDS and TCS rates by 25% – for all payments (other than salary) – till 31.03.2021. This shall release Rs.50,000 crore into the system.
2. All pending refunds of charitable trust, co-op societies, sole proprietorship, partnerships, LLPs,  – will be given  immediately. Corporate entities are not covered.
3. Extension of dates – Due date for income tax return extended till 30^th Nov 2020 and Tax audit till 31^st Oct 2020
4. Date of assessments (since assessments getting barred) extended till 31^st Dec 2020 from 30^th Sep 2020 (i.e. by 3 months). Those getting barred on 31^st Mar 2021 being extended by 6 months.
5. Vivaad se Vishwas scheme – getting extended till 31^st Dec 2020 without any payment.