Industry bodies welcome first part of financial stimulus measures announced by FM
New Delhi, May 14, 2020
Industry bodies have welcomed the first part of the financial stimulus measures announced by Union Finance Minister Nirmala Sitharaman here yesterday.
ASSOCHAM and NAREDCO President Niranjan Hiranandani said the measures would help in providing liquidity, prevent the closure of several small businesses and save hundreds of jobs.
“The first tranche announced today of the Rs 20 lakh crore package will revive demand back in the economy. These steps will ensure continuation of smaller enterprises in the market by giving them funds to run the business,” he said in a statement here yesterday.
Hiranandani said that, during the lockdown, the MSME sectors were struggling with working capital requirement to run their business. “With announcements like Rs 3 lakh crore collateral-free automatic loans for businesses, Rs 20,000 crore subordinate debt for stressed MSMEs and a Rs 50,000 crore equity infusion for MSMEs through fund of funds will pull the MSME sector from financial doldrums,” he said.
According to him, these measures would also help the companies to resume options needed to revive the economy.
“A lot of companies want to shift their operations to countries that are better prepared. India is one of the few countries that fit the bill. These measures would help get additional investments in the country,” he said.
He explained that the liquidity measures like the Rs 30,000 crore special liquidity scheme made in both primary and secondary market transactions in investment grade debt papers of NBFCs/HFCs/MFIs will help in providing funding to the real estate sector.
“Also the six-month extension for RERA registered projects expiring on or after 25th March, 2020 will also benefit several developers in a scenario where construction work has come to a complete standstill. This would also prevent them from defaulting on their timelines,” he pointed out.
Hiranandani stated that these measures, which are a part of the Atmanirbhar Bharat Abhiyan or the Self-Reliant India campaign would boost investments in Make in India projects in the post COVID-19 scenario.
FICCI President Sangita Reddy said the announcements made yesterday had set the stage for rebuilding Indian industry and economy.
"Listening to the Finance Minister and the series of measures spelt out gave us the confidence that our government is ready and will lead from the front in taking India out of the COVID-19 storm and emerge bigger and stronger. And as the country moves ahead it will ensure that every individual, every enterprise, and every section of society is taken along in a guided manner so that the impact of the turmoil is cushioned in the best possible manner.
"FICCI thanks the Finance Minister for the Stimulus Package 2.0 and looks forward to more such measures in the ensuing days," she said.
“The greatest takeaway from today’s announcement was the clear focus on getting liquidity flowing into the system. Besides liquidity, we need to give equal focus on generating consumption demand and propping up investments. We hope that in the next set of announcements, these areas will be taken up in a comprehensive manner as well,” she said.
Reddy said the MSME sector had been bearing the brunt of the COVID-19 lockdown and many of FICC's constituents across the country were looking forward to the relief measures to be announced by the government.
"With a breakdown in their cash flow cycle, MSMEs require money to restart operations as well as to continue to meet their fixed costs. FICCI had as part of its Fiscal Response Strategy shared with the Finance Minister requested for collateral free loans to be given to MSMEs with government guarantee. The Rs 3 lakh crore package geared towards this is most welcome and it should help bring back to life a large proportion of our MSMEs.
"Additionally, with the government announcing another Rs 20,000 crore of funds to be provided to stressed MSMEs and setting up a fund of funds worth Rs 50,000 crore that could take up equity in viable MSMEs and thereby pave the way for their listing on the market is a novel approach that will come in handy for the cash-starved but viable business entities. Clearing of the receivables for MSMEs due from CPSEs and other central government departments in the next 45 days will also bring back liquidity in the system and help units as they plan to restart their operations," she said.
Reddy said that, besides these direct liquidity infusion measures, the government has given MSMEs another shot in the arm by declaring that all public procurement tenders upto Rs 200 crore will no longer be global tenders. This will help in bringing more business to Indian MSMEs and create greater opportunities for them in government projects and procurement areas that can be substantive.
On support extended on payment of statutory dues, the 3-month extension given to the earlier announced measure of government contributing both the employer and employee share in PF within certain limits is a noteworthy move, she said.
"FICCI members have reported that this support was timely, but we could look at enhancing the wage limits set under this relief measures as minimum wages vary from state to state. Simultaneously, the temporary reduction introduced in the contribution towards provident fund from 12 per cent to 10 per cent of basic salary should lead to an increase in the take home pay of individuals and provide some impetus to consumption.
"Another sector that came in for special mention today was NBFC / HFC and MFI sector. The clear developmental role of these players was recognised by the government and as an acknowledgement of their contribution to promoting growth by delivering credit to the underserved segments of society, the government announced two special lines. A special government-guaranteed liquidity line worth Rs 30,000 crore and extension of the Partial Credit Guarantee Scheme by Rs 45,000 crore with first loss default cover of 20 per cent. Feedback from FICCI’s NBFC members shows that the funds allotted earlier through the TLTRO by RBI through the banks were not reaching NBFCs and HFCs because of the clear risk aversion on part of banks to lend under current circumstances. With today’s announcements, we hope the perceived credit risk amongst banks with regard to NBFCs and HFCs will come down and the flow of funds will resume to NBFCs including those that have investment grade paper and not just triple A rated instruments. FICCI has made specific suggestions on how the Partial Credit Guarantee Scheme can be improvised for better administration and we hope that these changes will be looked into by the government in the days ahead.
"On the power sector, the need for reforms is urgent and long overdue. While the infusion of liquidity to the tune of Rs 90,000 crore in DISCOMs against their receivables by PFC and REC will help DISCOMS discharge their payments to GENCOs, a longer-term approach to make the sector sustainable is required. Nevertheless, we hope more reform measures will be announced with time.
"The relief offered to contractors undertaking infrastructure projects in terms of extending the timelines for completion of projects / construction related milestones without attracting any penalty should offer some succour to them. However, the larger support that comes to them is in the form of release or repayment of bank guarantees linked to the completion of the projects. This would be helpful and players in the infrastructure sector were seeking such relief. In the same light, the declaration of COVID-19 as force majeure under RERA should de-stress players in the real estate sector.
"Further, continuing with the earlier efforts to ease the compliance burden on individuals and companies, the government has further extended the due dates for filing of tax returns and assessments and we welcome these steps. On the tax side, the reduction by 25 per cent in the applicable rates of TDS and TCS is expected to release Rs 50,000 and this will be another avenue by which more money will be left in the hands of companies and individuals.
"FICCI is hopeful that more such measures will be announced by the government in the coming days and we will see greater thrust being laid on some of the most battered segments of industry including tourism, hospitality, aviation and healthcare. FICCI has requested that a minimum amount of Rs 20,000 crore be allotted for these sectors as they have seen maximum dip in demand and will also take much longer to recover from the set-back seen.
"Healthcare sector also needs huge impetus in order to build capacity to fight the covid-19 menace effectively. The sector is trying to make its contribution but needs support to sustain its efforts.
"The government also needs to plan for more support for the migrant workers and the more vulnerable sections of society.
"Finally, large corporates have also been significantly affected. FICCI has recommended a need for COVID liquidity bridge for providing guarantee to banks to give them comfort to restructure/ extend loans to companies whose balance sheets have been impaired due to covid-19. Government needs to provide an amount of Rs 10,000 crore in first year towards this, which is a small amount of support needed but can have significant impact on companies and economy," Reddy added.