Sitharaman

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 ~3 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 ~5 crore to ~10 crore.

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 ~20 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 ~25 crore outstanding and revenue of up to ~100 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 ~25 crore to ~50 crore, and to increase the annual turnover ceiling from ~100 crore to ~250 crore in line with the new definition of MSME.”

The Cabinet on June 1 raised the upper limit of turnover for a MSME to ~250 crore.

As of July 29, over ~1.36 lakh crore had been sanctioned and ~87,227 crore disbursed under ECLGS, Panda said. “We expect some headroom of about ~1 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 ~2.1 lakh crore in disinvestment proceeds during fiscal 2020-21.

In May, the government announced an elaborate disinvestment strategy along with the ~20 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 nonstrategic 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.