Govt unveils ~6.3-trillion package to spur growth
Includes credit guarantee schemes, steps to revive tourism, strengthen health infra
Union Finance Minister Nirmala Sitharaman on Monday announced the much-awaited fiscal package to revive the economy ravaged by the second pandemic wave, keeping the fiscal outgo limited for the current year.
The ~6.28-trillion package included a new credit guarantee scheme for health, tourism and micro borrowers, besides expanding the Emergency Credit Line Guarantee Scheme (ECLGS) by half to ~4.5 trillion and extending the Aatmanirbhar Bharat Rozgar Yojana.
“Measures announced by the FM will enhance public health facilities, especially in underserved areas, boost private investment in medical infrastructure and augment critical human resources. Special focus is on strengthening healthcare facilities for our children,” Prime Minister Narendra Modi tweeted.
The new announcements include extending credit guarantees of ~2.6 trillion and schemes worth ~2.4 trillion, spread over the next two to four years.
Economists estimate the fiscal outgo for fresh announcements in the current financial year at around ~60,000 crore, excluding the credit guarantee schemes.
An additional allocation of ~2.32 trillion has been made to develop health facilities for children.
“There are eight such measures being announced as relief. Of those, four are absolutely new. One is specific to health infrastructure and others pertain to growth in general, exports and employees … We also want to revive tourism to survive the second Covid-19 wave,” Sitharaman said.
The government announced ~1.1-trillion loan guarantees for pandemic-affected sectors. Of that ~50,000 crore will be for scaling up medical infrastructure in non-metropolitan cities.
The scheme will provide loans up to ~100 crore for three years with interest capped at 7.95 per cent. Guarantee coverage on such loans extended would be 50 per cent for expanding existing facilities and 75 per cent for new projects.
“There are no quantitative targets for health infrastructure. It will be demand-based to cover underserved areas to be decided by the private health care providers and banks, and where the need is felt,” said Finance Secretary T V Somanathan.
The remaining ~60,000 crore under the scheme has been earmarked for credit guarantees for other sectors, including travel and tourism, with interest capped at 8.25 per cent.
In order to support the rural economy and demand, the government has announced another credit guarantee scheme to finance loans through microfinance institutions (MFIS). The government will provide guarantees to scheduled commercial banks for loans to new or existing MFIS on lending up to ~1.25 lakh to about 2.5 million small borrowers. The interest rate under the scheme will be capped at the marginal cost of funds based lending rate plus 2 per cent. “They can borrow for any of the purposes they want to,” said Sitharaman.
“All kinds of stressed accounts can benefit from it; that’s why we have mentioned defaulters. If the default is only for 89 days, they also get covered,” said Sitharaman.
The scheme will be available till March 31, 2022, or until ~7,500 crore worth guarantees get exhausted, whichever is earlier.
“By creating this window (MFI) we are encouraging banks to lend to people who need working capital to start operations. It also ensures that they get credit at a low cost. We are also ensuring that there is adequate liquidity available through various financial institutions. It is overall a measure to ensure that money comes to small and large enterprises,” said Debasish Panda, secretary, Department of Financial Services (DFS).
Besides these two credit guarantee schemes, the government has expanded the scope of the ECLGS, providing an additional ~1.5 trillion from the earlier ~3 trillion announced last year. So far, ~2.73 trillion has been sanctioned to 11 million enterprises under the scheme. About ~30,000 crore is estimated to be the additional expense to provide government guarantee for new credit guarantee scheme for health and other sectors as well as expansion of ECLGS over a three year period.
With experts warning of the impact of the likely third wave on children, the government allocated an additional ~23,220 crore, focusing on children and pediatric care. The additional allocation will focus on increasing the availability of ICU beds, oxygen supplies at central district and sub districts, ambulance services, medicines and tele-consultation with a primary focus on children. Out of ~23,220 crore, the Centre's share in the scheme will be ~15,000 crore. “The allocation will be made available to the Ministry of Health immediately to distribute to states as part of the National Health Mission. The pace of spending will be up to the states, and we are ensuring that funding is not a constraint,” said Somanathan.
In order to revive tourism, the government announced two measures — credit guarantee for travel agencies and tourist guides and 500,000 free visas for travellers up to March 31, 2022. The scheme aims to cover 10,700 travel agencies and tourist guides recognised by the Ministry of Tourism and the state governments. “There will be no processing charges and a waiver for foreclosures for prepayments,” said FM Sitharaman. Credit guarantee of up to 100 per cent will be provided for loans of ~10 lakh for travel agencies and ~1 lakh for tourist guides.
Aditi Nayar, chief economist, ICRA Ratings, has estimated the fiscal impact of the announcements at ~60,000 crore for FY22.
TV Narendran, president of the Confederation of Indian Industry, said the economic relief package announced for the tourism sector will usher in liquidity.
The government also extended the Atmanirbhar Bharat Rozgar Yojana by six months to March 31, 2022. Under the scheme, 25 per cent of the wages are paid by the government for those who draw ~15,000 or less per month in establishments with 1,000 or fewer employees. In the case of more than 1,000 employees, 12 per cent of wages will be paid by the government. Sanjiv Mehta, senior vicepresident at Ficci, said the ~1.1 trillion credit guarantee scheme for Covid-affected sectors with stress on the health sector should ensure timely availability of medical aid in the smaller cities. The government also announced a ~33,000 crore boost for project exports through the National Export Insurance Account, by extending risk coverage to promote medium and long-term exports. The amount will be provided over five years.
For merchandise exports, an equity infusion of ~88,000 crore over five years will be provided.