A Rs3 lakh crore emergency credit facility targeted at small enterprises will now be extended to professionals such as doctors and chartered accountants as well to help them tide over the crisis triggered by the coronavirus disease, finance minister Nirmala Sitharaman said on Saturday, warning that the timing of a full economic recovery is tough to predict when the pandemic is still to play itself out. The government estimates that around Rs1 lakh crore of the facility would be used by the professionals.
“Some pockets are still under containment… decided by states, which is the right thing as states are better placed to judge. We appreciate that,” Sitharaman said at an interaction with media in North Block. “But there are disruptions in the value-chain which is not just confined to raw materials. It also involves manpower and outsourcing of services. Hence,it is difficult to do an assessment.”
She said migrant workers who had left the cities for their homes in the hinterland after the lockdown was enforced on 25 March to curb the spread of the disease were returning to work in one positive development for the economy. “Some of them have approached their employers… One-two industrial groups have made arrangements to bring them back,” she said.
Under the scheme, 100% guarantee coverage will be provided by the National Credit Guarantee Trustee Company for additional funding of up to Rs 3 lakh crore to eligible MSMEs and interested Micro Units Development and Refinance Agency borrowers in the form of a guaranteed emergency credit line (GECL)facility.
Prime Minister Narendra Modi is getting regular feedback on the economic situation and the government is keeping all options open to facilitate a faster economic recovery, Sitharaman said. Even so, the government is cautious about overstating the green shoots of a recovery visible in the economy, she added.
Sitharaman said the Rs3 lakh crore emergency working capital loan scheme meant for Micro, Small and Medium Enterprises (MSMEs) had attracted significant response and its scope has been expanded at the request of industry so that more units and individual professionals can get financial support as well.
“After consultations with stakeholders and taking into account the remaining headroom under the scheme, it is decided to include individual loans for business purposes within its ambit,” she said. The scope of the Emergency Credit Line Guarantee Scheme (ECLGS) has also been expanded in line with the revised definition of MSMEs and the cap on funding under the scheme doubled from Rs5 crore to Rs10 crore.
This is the latest in a string of stimulus measures announced by the Modi government to cushion the impact of the coronavirus disease pandemic, which struck at a time when a slowdown in householding spending and corporate investment had already become a drag on economic growth, which decelerated to 4.2% in fiscal 2019-20, the slowest pace in 11 years.
It follows precipitous growth contractions reported by the United States and European countries after the pandemic closed shops, factories and restaurants, signalling a period of recession. The United States economy posted a second-quarter contraction of 9.5%, the worst figure on record. Europe as a whole saw GDP fall by 12.1% in the Eurozone and 11.9% across the bloc. Most economists expect India’s economy to shrink by at least 5% this financial year.
Sitharaman said the Cabinet will soon decide which public sector units would come in the strategic sectors.
In order to define the strategic sector, the government will soon announce a new public sector enterprises policy, government officials said, requesting anonymity.
To provide relief to the industry, the government is in talks with the Reserve Bank of India (RBI) on various matters, Sitharaman said.
Industry has been demanding a one-time loan restructuring; private banks are not in favour of extending loan moratoriums any further, out of concern that even borrowers capable of paying back loans may be dissuaded from doing so in case of an extension. RBI’s Monetary Policy Committee (MPC) is scheduled to meet next week.