Due to the COVID-19 pandemic and the subsequent national lockdown, several non-essential services were shut down, which had a significant effect on the economy. Consequently, in May 2020, Prime Minister Narendra Modi announced an economic stimulus package called the AatmaNirbhar Bharat Scheme, which amounts to Rs 20.97 lakh crore (equivalent to roughly 10 percent of India’s GDP in 2019-20).
This announcement was followed by a series of press conferences by Finance Minister Nirmala Sitharaman detailing the measures under the package. The stimulus package also includes the measures announced by RBI to increase liquidity (reduction in CRR and MSF rates, targeted long term repo operations) and the PM Garib Kalyan Yojana relief package announced in March 2020.
However, as perestimates released in August 2020, India’s GDP (at constant 2011-12 prices) contracted by 23.9 percent in the first quarter (April-June) of 2020-21 over the corresponding period in 2019-20. Recently, it was reported that the government is considering a second economic package to help accelerate growth. In light of this, we analyse the progress made under some of the announced measures such as credit support to MSMEs and businesses, credit to farmers, and relief measures for affected persons.
Borrowing by states
The Fiscal Responsibility and Budget Management laws of states prescribe a ceiling on the state government’s borrowing at 3 percent of the Gross State Domestic Product (GSDP). As per this limit, the total ceiling for borrowing for the states for 2020-21 stood at Rs 6.4 lakh crore. However, due to COVID-19 and the subsequent lockdown, revenue streams for states were severely impacted. Therefore, under the scheme, states have been permitted to increase the borrowing limit to 5 percent of GSDP. This is expected to provide an additional borrowing of Rs 4.28 lakh crore to states (which amounts to nearly 20 percent of overall stimulus under the scheme).
However, of this permitted additional borrowing of 2 percent of GSDP, 0.5 percent is unconditional while the rest depends on the implementation of certain reforms. Additional borrowing of 1 percent is permitted after implementation of reforms related to the following four areas (0.25 percent for each): (i) one nation one ration card system, (ii) ease of doing business, (iii) power sector, and (iv) urban local bodies.
As of 2 October 2020, only six states (Andhra Pradesh, Goa, Karnataka, Telangana, Tripura and Uttar Pradesh) have implemented the first reform, while only one state (Andhra Pradesh) has implemented the second. It is unclear how many states have implemented the reforms related to the power sector and urban local bodies. Therefore, it remains to be seen to what extent states will be able to exercise the additional borrowing.
Credit support to MSMEs and businesses
Under the scheme, a fund to provide emergency credit guarantee to MSMEs was proposed, and approved by the Cabinet in May 2020. It allows MSMEs to borrow up to 20 percent of their entire outstanding credit from banks and non-banking finance companies through loans guaranteed by the government (subject to a ceiling of Rs 3 lakh crore). The government estimated that this credit guarantee will provide liquidity to 45 lakh businesses. As of 29 September 2020, a total of Rs 1.86 lakh crore of loans have been sanctioned under the scheme. Of this, Rs 1.32 lakh crore has been disbursed (44 percent of the ceiling amount) to nearly 27 lakh borrowers (60 percent of the estimated number).
The Partial Credit Guarantee scheme (operational since December 2019) provides credit guarantee on first 10 percent loss on the purchase of bonds or debt issued by non-banking finance companies, housing finance companies, or micro-finance institutions. Under the Aatma Nirbhar Scheme, this guarantee was increased from 10 percent to 20 percent of the initial loss. The government estimated that this will result in the purchase of bonds worth Rs 45,000 crore. As of 25 September, banks have approved purchase of bonds worth Rs 25,505 crore under the Scheme and a portfolio of Rs 16,401 crore has been purchased.
To support farmers, the scheme announced providing concessional credit to the tune of Rs 2 lakh crore to farmers through Kisan Credit Cards. The government estimated this measure will benefit nearly 2.5 crore farmers. As of 25 September, 1.4 crore Kisan Credit Cards have been sanctioned with an aggregate credit limit of Rs 1.25 lakh crore.
Further, under the scheme, Rs 30,000 crore was announced as emergency working capital to the National Bank for Agriculture and Rural Development for meeting the crop loan requirements of small and marginal farmers. As of 25 September, Rs 25,000 crore of this emergency working capital has been disbursed under the scheme.
Measures for migrants and street vendors
The COVID-19 induced lockdown had a severe impact on migrant labourers, many of whom lost their jobs due to the shutting of industries and were stranded outside their native places. To provide relief to migrants, the government announced that it will provide free food grains to migrants who are not getting benefits otherwise.
The implementation, including the identification of migrants, was left to the state governments. The states estimated that 2.8 crore migrants could avail this scheme. Of these, free food grains were distributed to an average of about 2.66 crore beneficiaries per month (or 95 percent of the identified migrants). However, note that the Central government had initially estimated 8 crore migrants to benefit from this measure. Further, as per Census 2011, there were 45.6 crore migrants in the country.
Like migrants, street vendors were also severely impacted as a result of the lockdown. To provide relief to them, a special credit facility of Rs 5,000 crore was announced under the scheme. Through this facility, collateral-free loans up to Rs 10,000 will be provided to street vendors. The government estimated that this would benefit 50 lakh street vendors. However, the adoption of this credit facility has been low.
As of 15 September, 2020, nearly 12 lakh loan applications were received for credit, of which loans have been sanctioned to nearly 4.2 lakh applicants. The total amount of loans sanctioned is Rs 416 crore. Note that this is just 8% of the total funds for this special credit facility.
Pradhan Mantri Garib Kalyan Yojana
The stimulus under the Scheme includes the Rs 1.7 lakh crore relief package announced in March 2020 under the PM Garib Kalyan Yojana. As of 9 September 2020, around 42 crore persons received financial assistance of Rs 68,820 crore under the relief package.
Besides the above, the government announced several policy reforms as part of the measures under the scheme, which were approved by Parliament in the recent Monsoon session. The Taxation and other laws Act, 2020 was passed to provide for relaxations related to compliance in income tax, GST and certain other taxes. The Insolvency and Bankruptcy (Amendment) Act, 2020 was passed to suspend initiation of any insolvency proceedings for defaults arising during the nine months since the lockdown (from 25 March to 25 December).
Similarly, the Farmers’ Produce Trade and Commerce Act, 2020 was passed to allow barrier-free trade of farmers’ produce outside the state APMC markets.
The author is an analyst in the research team at PRS Legislative Research.