Centre likely to announce financial relief package next week

      Published on Saturday, 9 May , 2020      44 Views     

  • India Business

The Union government is all set to announce a “financial relief package” to remedy the deepening economic crisis owing to the novel coronavirus outbreak and the triple-phased lockdown that followed.

A source in the government told India Today, “The discussions and deliberations on the package at the top level of the government were over almost a week ago. If there is no serious and staggering spike in the number of cases of infection, an announcement in this regard could be made as soon as next week.”

The final round of discussion regarding the package was held between top officials of the Finance Ministry on May 2.

Also in attendance were Finance Minister Nirmala Sitharaman and Prime Minister Narendra Modi. Senior officials within the PMO (Prime Minister’s Office) have been working to tighten the nuts and bolts in the relief package which further suggests that the announcement is not too far.

In recent weeks, experts and opposition leaders, including Rahul Gandhi, have been suggesting that the government aid should target the bottom 30-40 per cent of the economic strata which includes daily wagers and migrant workers.

On the condition of anonymity, the source added, “Not all measures which are part of the package need a Cabinet clearance but there are some proposals which will need a nod from the cabinet. There has been no cabinet meeting for the last two weeks and the next one could take place on Wednesday.”

To prepare the financial system for the big move, Finance Minister Nirmala Sitharaman will meet the CMDs and CEOs of national banks on Monday. The agenda of this meeting is likely to include credit flow, credit sanctions and disbursements since March 1 along with four other crucial points.

Centre to borrow more to fund relief package

On Friday, the central government had indicated that the financial relief package will be funded through additional funding from the market. An announcement was made on the same day that the Centre would raise its borrowing by over 50 per cent of the budgetary estimate during FY2020-21. A statement from the Economic Affairs Department of the Finance Ministry had said, “The estimated gross market borrowing in the financial year 2020-21 will be Rs 12 lakh crore in place of Rs 7.80 lakh crore as per BE 2020-21.”

The government of India leans on such borrowings to bridge the gap between its income and expenditure. This provides ample evidence that the Centre has shed its reluctance to breach the fiscal deficit targets. Following this level of borrowing, the fiscal deficit during 2020-21 could go up by 200 basis points while 100 basis points translate to 1 percentage point.

Substance of the package

Sources in the government had told media outlets last week that “a package with proposals and implications” was sent some time ago from the North Block office of the Finance Ministry to PMO in South Block.

Concerned departments such as the Department of Financial Services which deal with banking-related issues are said to have already submitted their report vis-à-vis the measures, implications and procedures. Ministries like MSME, Labour and others have also sent in their proposals and responses.

Multiple sources in the government and its advisory entities claim that the package focuses on relief, rehabilitation and revival of the Indian economy. The PMO has also held a series of meetings with different ministries, departments and statutory bodies like the RBI to discuss the package.

A “big bang” package has not been the government’s first choice and it has been opting for “targeted packages” for different sectors and segments in a phased manner with the active involvement of the RBI.

Aid for MSMEs

The PMO is said to have drawn a comprehensive proposal for the MSME sector that may address the concerns of both the employer and the employee. The Ministry of MSME had sent multiple proposals for the sector and the PMO is said to have taken the final call.

To help the MSMEs, the Centre is believed to be working on provision of guarantees for additional funding of 20 per cent of the credit limit of medium and small entities. This may involve a backstop guaranteeing over Rs 3 lakh crore in loans.

Once the government steps in as a guarantor, banks will be incentivised to lend to MSMEs. A senior government official said, “Using the loans once MSMEs kick start operations, defaults will not be instant. They may occur only after the deep distress forced by coronavirus spread has abated. The Department of Financial Services is said to have submitted its report to the PMO on this proposal.”

Category India Business | 2020/05/09 latest update at 10:14 PM
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