Macro Moves

First phase announcements of PM Modi's Rs 20 trillion stimulus package

Created on 15 May 2020

Wraps up in 3 Min

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Updated on 08 Sep 2020

First phase announcements regarding the gigantic 20 trillion stimulus package.
There’s something very special about self-dependence. If you’re actually self-dependent, you’ll feel liberated from within and you would be motivated to achieve bigger things in life. However, if you stay satisfied with your dependency over others for your survival, you will surely limit yourself and miss the potential growth that you could have enjoyed. This may sound philosophical, but its commercial advantage is being explored by our government currently through ‘Atmanirbhar Bharat’.

The stimulus package of 20 lakh crores announced by the government is a part of a bigger mission to create a self-sustained economy that also contributes to the world. For this, a sector that had to be lifted was MSME (Micro Small and Medium Enterprises). The MSMEs were facing tremendous obstacles and hence the sector wasn’t enjoying growth that it could have potentially. So, the government is trying to give a much-required push to them. However, the overall package is robust and comprises several other aspects. Let’s have a detailed look at the announcements made in the first phase.

The Announcements – Between the Lines

The stimulus package is one of the largest in the world, rounding up to 10% of the country’s GDP. Actually, it is worth more than what was being expected from the government. However, most of the package comprises guarantee and liquidity. The package also includes food grains and cashflows of 1.7 lakh crore provided to the poor and interest rate cuts from the RBI, amounting to 0.8% and 3.2% of the GDP respectively.

Coverage of sectors:

The package seems to be considered holistically by the government, as it covers providing cash benefits to poor, interest rate cuts, lending to power discoms and NBFCs, coverage of pf, deduction in TDS, and a new outlook towards MSME in terms of definition and financial help. The package doesn’t cover anything for the state governments, migrant workers, and agriculture specifically.

How will the NBFC’s benefit from the package?

The package will serve as a much-needed relief for the sector. As the sector was struggling and was in limbo with the RBI’s moratorium. NBFC will be supported by the government by creating a special fund of 30.000 crores and banks will provide guarantee on a credit scheme, no fund will be allocated for the latter

Provident Fund and TDS measures:

TDS and TCS are cut by 25% for the next year enabling the salaried employees to take more money home in order to maintain liquidity. Mandatory EPS contribution has also been decreased from 12% to 10%. For both, the measures the govt no funds allocation will be needed. The government will be paying PF contributions for 3 months for a worker in small units covered under PMGKY amounting to Rs 2500 crore

The coverage on MSME:

The government focused heavily on MSME through the package. Starting with changing the definition to make it more inclusive and broad to announcing funds and reliefs of a total of 3.7 lakh crores. A whopping 3 lakh crore collateral-free loan as the guaranteed will be provided by the government subject to various conditions. Subordinate debt for stressed MSME’s and equity infusion to provide liquidity.

The overall effect of this package:

The effect of the package on fiscal deficit is yet to be clear and allocation of around 7 lakh crore is still not clear. The package is mostly focused on reliefs and measures and the cash component is significantly less. The government has maintained its rhetoric of Make in India and is trying to further push it through this package. However, some bold measures on land and labor will be required from the government in order to succeed.

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Ayushi Upadhyay

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A Keen Learner. Tiny, brainy, and studious, this quiet one stays in her zone until she pops. And once she does, boy, are her comebacks snappy! There is no financial question that she can't answer through her magical blog-writing. 

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