New ₹75k-cr fund to boost small industry in post-Covid world
TARGET AREAS The fund’s purpose is to provide low-cost aid to MSMEs for their working capital needs
NEW DELHI: The government may set up a fund with a corpus of about ~50,000 crore to ~75,000 crore to revive industries, particularly labour-intensive small and medium units, as a part of an economic stimulus package currently under consideration to revive growth in the post-Covid-19 era, two officials aware of the plan said.
The corpus, which is yet to be finalised, is expected to be partly funded by a cess proposed to be levied on certain commodities such as fuels, and partly from budgetary support, officials said.
“The purpose of the fund is to provide low-cost money to industrial units, particularly MSMEs, for their immediate working capital requirements so that they can expeditiously complete pending orders and receive payments.,” one of the officials said.
NEWDELHI: The government may set up a fund with a corpus of about ₹50,000 crore to ₹75,000 crore to revive industries, particularly labour-intensive small and medium units, as part of an economic stimulus package currently under consideration to revive growth in the post-covid-19 era, two officials aware of the plan said.
The corpus, which is yet to be finalised, is expected to be partly funded by a cess proposed to be levied on certain commodities such as fuels, and partly from budgetary support, the officials said, requesting anonymity.
“The purpose of the fund is to provide low-cost money to industrial units, particularly micro, small and medium enterprise (MSMEs), for their immediate working capital requirements so that they can expeditiously complete pending orders and receive payments. This will ensure synchronised movement of the wheels of the economy,” one of the officials said.
The second official said the fund can also be accessed by other stressed industrial sectors and exporters. “Nuances are being worked out. However, it (the creation of a fund) is one of the several proposals under consideration. A comprehensive stimulus package is on the drawing board. It is a work in progress and will be announced at an appropriate time,” he said.
Economic growth had already been slowing and several key sectors were in stress even before the onset of the coronavirus disease, which is expected to take a heavy toll. The federal budget presented in Parliament on February 1 had forecast an economic growth of 5% in the year to March 2020, the slowest pace in 11 years.
Analysts and economists say it could miss that number by a bit. There is also broad agreement that the Indian economy will expand at its slowest pace in years in 2020-21. Fitch Ratings expect it to grow by 2%, the slowest in 30 years.
The minority view, however, is that it could actually contract. Nomura Global Market Research expects the economy to grow by 0.5% for the calendar year 2020.
According to the officials cited above, the government’s priorities are containment of the spread of the disease, ensuring food and basic amenities for the poor, and restarting the engine of the economy.
“While the first two are immediate priorities, the third can wait for some time. However, protecting livelihoods is equally important and an economic stimulus package is a certainty. It is expected to be announced after a decision on the lockdown is taken,” the first official said.
Prime Minister Narendra Modi on March 24 announced a countrywide lockdown for 21 days starting March 25, until April 14. The government has indicated that the lockdown will not be lifted in its entirety, and several states have asked for its extension.
The right time to announce fiscal stimulus is after the lockdown is eased and the covid-19 curve starts flattening in next two-three weeks, said Ram Singh, a professor at the Delhi School of Economics.
“Currently, the government should focus on two things— (putting) cash in the hands of the poor and supply of food to them. But soon inventories of food and medicines will be exhausted, hence there should be a calibrated reopening of certain essential sectors, such as the pharmaceutical industry and food processing sector,” he said.
“Let the curve flatten out, which would be the time to give fiscal stimulus to sectors such as construction and MSMEs, and also big industries,” Singh added.
Officials said the government is readying a comprehensive economic stimulus package in consultation with stakeholders, such as state governments, economists and industry associations.
A spokesperson at the Federation of Indian Chambers of Commerce and Industry (Ficci) said the association had asked the government to create a ₹2 lakh crore ‘Bharat Self-Sufficiency Fund’ to spur a post-covid-19 revival of the economy.
According to Ficci, the fund should be utilised “to promote scientific research and innovation for building a stronger and resilient nation and to create self-sufficient industry clusters with fully developed value chains within the country for products where India has high import dependence.”
All stakeholders in the economy are unanimous that an economic stimulus package ranging from 2% of gross domestic product (GDP) to 5% is essential, the officials said.
While the Confederation of Indian Industry (CII) is expecting a package of at least 2-3% of GDP at around ₹4.5 lakh crore, Ficci and the PHD Chamber of Commerce and Industry have estimated the economic revival package at around 5% of GDP.
Their proposals are in addition to the ₹1.7 lakh crore welfare package announced by finance minister Nirmala Sitharaman under the Pradhan Mantri Gareeb Kalyan Yojana (PMGKBY) on March 26.
DK Srivastava, chief policy advisor at EY India, said a major stimulus package is needed as soon as the economic lockdown ends and normal economic activities resume.
“At that time demand will have to be supported through fiscal measures and these measures would supplement the already announced substantial monetary measures,” he said.
On March 24, Sitharaman relaxed several compliance provisions related to banks and income tax.
On March 26, she announced a ₹1.7 lakh crore package to support weaker sections of society worst hit by the lockdown. This was followed by the Reserve Bank of India, on March 27, infusing ₹3.74 lakh crore worth of liquidity into the system and sharply cutting the policy rate by 75 basis points.
One basis point is one-hundredth of a percentage point.