FM announces first tranche of Rs 20 lakh crore economic package

Taking forward the Rs 20 lakh crore economic package announced by Prime Minister Narendra Modi to actual allocations in various segments, Finance Minister Nirmala Sitharaman allocated Rs 3 lakh crore Emergency Working Capital Facility for businesses, including MSMEs and Rs 20,000 crore Subordinate Debt for stressed MSMEs.
She further announced new Definition of MSME and other measures for MSME with Rs 50,000 crore equity infusion through MSME Fund of Funds and said that there would be no global tenders of up to Rs 200 crore.  The Employees Provident Fund Support for business and organized workers will be extended for another three months from June to August 2020.
She added that EPF contribution to be reduced for employers and employees for three months to 10% from 12% for all establishments covered by EPFO for the next three months.

Further, Rs. 30,000 crore Special Liquidity Scheme has been announced for NBFC/HFC/MFIs and Rs. 45,000 crore Partial credit guarantee scheme 2.0 for liabilities of NBFCs/MFIs. Rs 90,000 crore liquidity injection for DISCOMs was also announced, besides relief to contractors given by extension of up to six months for completion of contractual obligations, including in respect of EPC and concession agreements.

Extending major relief to the real estate sector, the FM announced that registration and completion date for all registered projects will be extended up to six months. For the individual taxpayers and the businesses, she announced a reduction in rates of ‘Tax Deduction at Source’ and ‘Tax Collected at Source” by 25% for the remaining period of FY 20-21. Also, tax relief provided to business as pending income tax refunds to charitable trusts and non-corporate businesses and professions to be issued immediately and then due dates for various tax-related compliances has been extended.
Earlier, the PM had announced a special economic and comprehensive package of Rs 20 lakh crores – equivalent to 10% of India’s GDP. He highlighted that India’s self-reliance would be based on 5 pillars – Economy, Infrastructure, System, Demography, and Demand. He said that the government bears responsibility and reforms over the past 6 years have to be taken forward to build a self-reliant India.
The FM in her opening remarks said that the PM had laid out a comprehensive vision and ensured that inputs obtained from widespread consultation form a part of the economic package in the fight against COVID-19. She said the focus would be on land, labour, liquidity, and law, and then she recalled some reforms which have been undertaken since 2014. She informed, “Soon after Budget 2020 came COVID-19 and within hours of the announcement of Lockdown 1.0, Pradhan Mantri Garib KalyanYojna (PMGKY) was announced.”
In a nutshell, she announced tax relief to businesses, relief from contractual commitments to contractors in public procurement, and compliance relief to the real estate sector, among others.
Comprehensive measures announced by FM:
1. Rs 3 lakh crore Emergency Working Capital Facility:
For businesses, the FM announced providing total liquidity of Rs. 3.0 lakh crores to more than 45 lakh MSMEs. She added, “To provide relief to the business, additional working capital finance of 20% of the outstanding credit as on 29 February 2020, in the form of a Term Loan at a concessional rate of interest will be provided. This will be available to units with up to Rs 25 crore outstanding and turnover of up to Rs 100 crore whose accounts are standard.” The units will not have to provide any guarantee or collateral of their own. The amount will be 100% guaranteed by the Government of India.
2. For stressed MSMEs, Rs 20,000 crore Subordinate Debt announced
Provision made for Rs. 20,000 crore subordinate debt for two lakh MSMEs which are NPA or are stressed. The government will support them with Rs. 4,000 crore to Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE). Banks are expected to provide the subordinate-debt to promoters of such MSMEs equal to 15% of his existing stake in the unit subject to a maximum of Rs 75 lakh.
3. Equity infusion of Rs 50,000 crore through MSME Fund of Funds
The Govt aims to set up a Fund of Funds with a corpus of Rs 10,000 crore that will provide equity funding support for MSMEs. The Fund of Funds shall be operated through a Mother and a few Daughter funds. It is expected that with leverage of 1:4 at the level of daughter funds, the Fund of Funds will be able to mobilize equity of about Rs 50,000 crores.
4. MSME to get a new definition
The definition of MSME will be revised by raising the investment limit. An additional criterion of turnover also being introduced. The distinction between the manufacturing and the service sector will also be eliminated.
5. A few other neasures to strengthen the MSMEs
e-market linkage for MSMEs will be promoted to act as a replacement for trade fairs and exhibitions. MSME receivables from Government and CPSEs will be released in 45 days
6. For up to Rs 200 crores of Government works, there will be no global tenders
General Financial Rules (GFR) of the Government will be amended to disallow global tender inquiries in the procurement of Goods and Services of the value of less than Rs 200 crore.
7. Employees Provident Fund Support
The scheme was introduced as part of PMGKP under which the Government of India contributes 12% of salary each on behalf of both employer and employee. Total benefits accrued are about Rs 2500 crores to 72.22 lakh employees.
8. EPF Contribution to be reduced for Employers and Employees for three months
The step will ensure the liquidity of about Rs.2250 crore per month.
9. Special Liquidity Scheme of Rs 30,000 crore for NBFC/HFC/MFIs
The government will launch Rs 30,000 crore Special Liquidity Scheme. The investment will be made in primary and secondary market transactions in investment-grade debt paper of NBFCs, HFCs, and MFIs. This will be 100 percent guaranteed by the Government of India.
10. For NBFCs/MFIs Liabilities: Rs 45,000 crores Partial Credit Guarantee Scheme 2.0
The existing scheme will now be extended to cover the borrowings of lower-rated NBFCs, HFCs, and other Micro Finance Institutions.  The government of India will provide a 20 percent first loss of sovereign guarantee to Public Sector Banks.
11. Liquidity injection of Rs 90,000 crore for DISCOMs
Power Finance Corporation and Rural Electrification Corporation will infuse liquidity in the DISCOMS to the extent of Rs 90000 crores in two equal installments.  Further, CPSE GENCOs will give a rebate to DISCOMS on the condition that the same is passed on to the final consumers as a relief towards their fixed charges.
12. Relief announced for Contractors
All central agencies like Railways, Ministry of Road Transport and Highways and CPWD will be given an extension of up to 6 months for completion of contractual obligations, including in respect of EPC and concession agreements
13. Relief announced for Real Estate Projects
State Governments are being advised to invoke the Force Majeure clause under RERA. The registration and completion date for all registered projects will be extended up to 6 months and maybe further extended by another three months based on the state’s situation. Various statutory compliances under RERA will also be extended concurrently.
14. Businesses to get Tax Relief
The pending income tax refunds to charitable trusts and non-corporate businesses and professions including proprietorship, partnership, and LLPs and cooperatives shall be issued immediately.
15. Other measures related to Tax in a nutshell:
• Reduction in rates of ‘Tax Deduction at Source’ and ‘Tax Collected at Source” – The TDS rates for all non-salaried payment to residents, and tax collected at source rate will be reduced by 25 percent of the specified rates for the remaining period of FY 20-21. This will provide liquidity to the tune of Rs 50,000 Crore.
• The date for making payment without additional amount under the “Vivad Se Vishwas” scheme stands to be extended to 31 December 2020.

Comments from Industry veterans:

Vikas Chaturvedi, CEO – Xanadu Realty said, “We at Xanadu believe housing demand resurgence is the way to revive the economy. We hope and request soon our government will announce impactful measures to increase demand- be it through interest rate reductions, waiver of registration duty, tax incentives, subvention, and reduction of GST.” 

Ravindra Sudhalkar, CEO at Reliance Home Finance said, “The Finance Ministry’s advice to states and UT to treat COVID-19 as an event of ‘Force Majeure’ under RERA will provide major relief to real estate developers whose projects have been stuck due to lack of liquidity and cash flow stoppages. The move to extend the registration and completion date by 6 months for all registered projects will provide more time to such developers to raise fresh financing or debt to complete their pending projects. The ease of compliance norms under RERA and other laws is a timely and well-thought-out decision to ease the stress of small developers, especially those into affordable housing.”

Kaushal Agarwal – Chairman, The Guardians Real Estate Advisory said, “The Government has intended to resurrect the economy by reviving sentiment. The Rs 30,000 crores infusion in NBFC’s, HFC’s and micro-finance companies with the help of debt papers and an additional 20% emergency credit line to businesses will directly impact the real estate sector and bring much-required liquidity for construction and project completion. Additionally, the invoking of force majeure clause for registered real estate projects will protect the interest of developers, by extending the completion timeline by a duration of 6 months under RERA automatically. Additionally, the 3 lakh crore collateral-free loans for small business and Rs 20,000 crore fund for stressed MSMEs will offer respite in these testing times to major employment-generating business category.”