I’ve done the best for India Inc: FM
MINISTERSPEAK Nirmala Sitharaman defends stimulus package and says will not hesitate to take more steps if needed
The government has taken adequate steps to address the problems of India Inc, Union finance minister Nirmala Sitharaman said in an interview to on Tuesday, defending the stimulus package announced last week. She, however, did not rule out the possibility of taking more steps to support Indian businesses, if needed.
Over five days in the last week, Sitharaman had announced the contours of a ₹20 lakh crore package first announced by Prime Minister Narendra Modi as a measure to fight the economic erosion due to the Covid-19 pandemic and to make the country “self-reliant”. But experts soon pointed out that the additional government spending as a part of the package is limited.
“It is worth remembering that before Covid-19, when we all felt the economy was slowing down and an incentive was needed to be given, the corporate tax rate was cut to an unimaginable extent—it was a drastic step,” Sitharaman said, adding: “It is not as if I have not responded to industry”. “We showed that we want to give big time help to the industry. Possibly, some green shoots should have been visible by January, by which time companies could have saved enough for making fresh investments; but God willed otherwise.”
The minister also indicated that the government is expecting some lag in recovery due to migrant workers who have returned home during the lockdown. “I am expecting (relatively speaking) a surge in growth but it may be gradual because the labour component is something on which the industry is either remodelling themselves by depending more on local workers, skilling them, or probably waiting for (the return of) those people who have gone home. The surge, from that point of view, may be gradual given the uncertainty related to labour,” she said.
The FM’S announcements last week were part of a slew of measures taken by the government for micro, small and medium enterprises (MSMES), agriculture, migrant workers, defence, businesses, and other segments.
The minister responded to being categorised as a fiscal hawk in her policy, saying: “I am hearing it for the first time. I would assume that is a virtue. I am dealing with public money; I am dealing with every penny for which I am answerable to. I have to be cautious”. She added that she is keeping options open for how the government will fund the stimulus package. “At this stage, it is still difficult for me to say anything. As I said, I have kept all my options open. I have to see where it goes,” she said.
The pandemic is likely to continue to impacting the economy, the minister said, adding that the government will wait and watch to see how things play out. “We are still in lockdown mode. These schemes are getting implemented and people will have some money in their hands again. This may not be the best time to make an assessment,” she said.
“The world is not going to be the same way. When we lift the lockdown, the working environment, the interpersonal contact for business is changing, the world over. Some companies have said working from home could be the norm permanently,” the minister said, explaining why she mentioned that India was entering a new paradigm in a post-covid world.
“I would think one of the big things that have changed, a paradigm shift, is that administration, urban local bodies, wards and panchayats will now have to — I am not speaking on behalf of the government; I will propagate this at any opportunity I get — develop a credible data source of people and their skillsets, the industry engaging them so that if any such situation happens, we can handle them,” she said.
funds (MFS) sold debt paper in credit risk funds to their other schemes to repay investors amid the panic withdrawals of last month, data showed.
Total assets under management (AUM) of India’s credit risk funds plunged 35% from ₹48,576 crore on 24 April to ₹31,357 crore on 15 May—a drop of ₹17,219 crore in just three weeks—after Franklin Templeton shuttered six credit risk funds. However, none of the mutual funds, barring Nippon India, borrowed from banks to repay investors. Most of them identified and transferred some of the illiquid debt paper from credit risk funds to other funds within the same asset management company (AMC).
Investors in credit risk funds redeemed units worth ₹19,238.98 crore in April, of which around one-third was met by selling bonds to other schemes of the same fund house, according to data from Pulse Labs. HDFC Mutual Fund transferred securities worth ₹2,250 crore to other schemes, ICICI Prudential AMC ₹1,600 crore, Kotak Mahindra AMC ₹580 crore, Aditya Birla Sun Life Mutual Fund ₹800 crore, SBI Mutual Fund ₹195 crore and Nippon Life India AMC ₹340 crore.
SBI Mutual Fund in a statement to Mint said, “These transactions are based on market prices provided by valuation agencies and within the investment mandates of the purchasing schemes.” Aditya Birla Sun Life Mutual Fund said, “Credit funds facing redemption is an industrywide scenario. Majority of the transfers were of liquid AAA papers and the balance was of short term AA papers.”
The government’s ₹20.97 lakh crore Covid-19 package lacks in addressing immediate concerns of the economy as the actual fiscal impact of the additional stimulus is only about 1% of GDP as opposed to the claim of 10%, Fitch Solutions said.
“About half of the package amount covers fiscal measures that had previously been announced and also include the estimated economic impact of monetary stimulus from the Reserve Bank of India (RBI),” Fitch Solutions added in a note.
The rating agency said a seeming reluctance for fiscal expansion by the central government amid the Covid-19 crisis in India also poses a significant downside risk to its 1.8% growth forecast for 2020-21 fiscal.
“India’s economic crisis is growing increasingly dire due to surging infections and weak demand both domestically and externally. We believe that every delay to effective government stimulus will only deepen the downturn, which will eventually require even more spending to lift the economy out of the doldrums, which could see the deficit come in wider,” it said.
The new fiscal stimulus announced between May 13 and May 17 is “made up of the government loan guarantees, credit extensions to be led by banks, and regulatory amendments,” the rating agency said.
“We see the package as being lacking in addressing the immediate concerns of the economy and have revised our central and combined deficit forecasts for FY2020/21 (April–march) to 7% and 11% of the GDP respectively, from 6.2% and 9% previously,” the agency said.