Big Relief, Small Stimulus: Credit boost main plank, fiscal cost just a fraction of Rs 6.29-lakh-crore package

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June 29, 2021 4:40 AM

While the aggregate relief, as estimated by the government amounted to Rs 6.29 lakh crore, a sizeable chunk of Rs 2.68 lakh crore is credit to be facilitated.

The actual food subsidy spend in FY21 was Rs 5.25 lakh crore, Rs 1 lakh crore more than the revised estimate (RE).The actual food subsidy spend in FY21 was Rs 5.25 lakh crore, Rs 1 lakh crore more than the revised estimate (RE).

Amid calls for a fresh relief package to soften the blow to the economy and people at large from the savage second Covid wave, the government on Monday unveiled a package that largely consisted of steps to boost credit flows to multiple sectors, chiefly MSMEs, small borrowers, healthcare providers and contact-intensive sectors such as travel and tourism. While the aggregate relief, as estimated by the government amounted to Rs 6.29 lakh crore, a sizeable chunk of Rs 2.68 lakh crore is credit to be facilitated.

Estimating the additional burden on the 2021-22 budget from three direct stimuli in the package at Rs 1,18,390 crore or 0.5% of estimated GDP for the fiscal year, EY said this was of a limited magnitude. If the guarantee schemes and the announcements that had already been made earlier are excluded, the step-up in the fiscal outgo within FY22 could be just Rs 60,000 crore, Icra noted.

Finance minister Nirmala Sitharaman enhanced the limit of fully-guaranteed loans at cheaper rates to businesses and individuals by Rs 1.5 lakh crore under an extant scheme to Rs 4.5 lakh crore. The move, aimed at stirring economic growth through sustained credit push, could cost the exchequer an extra Rs 20,000 crore over three years, analysts said.

Sitharaman also announced an additional Rs 1.1-lakh-crore credit facilities, with up to 75% sovereign guarantee, for healthcare and other sectors hit hard by the pandemic. Of this amount, loans of Rs 50,000 crore will be extended to private hospitals to expand their existing facilities or set up new units outside top eight cities. Each investor can be granted a maximum of Rs 100-crore loan. The interest rate will be capped at 7.95% per annum. The guarantee coverage, available for three years, will be limited to 50% for expansion and 75% for new projects. However, the coverage will be 75% for both greenfield and brownfield projects in the 125 “aspirational districts” notified by the government.

For other sectors, struggling to cope with the damage caused by the pandemic, a guaranteed credit of Rs 60,000 crore will be provided, Sitharaman said, with a promise to review the limit later, based on “evolving needs”. The interest rate will be capped at 8.25%, considerably cheaper than the normal rate (for loans without guarantee) of 10-11%.

As for the stepped-up, Rs 4.5-lakh-crore programme, known as the Emergency Credit Line Guarantee Scheme (ECLGS), the limit of guarantee and amount for each loan will be raised from the existing level of 20% of the outstanding amount.

Already, loans of Rs 2.73 lakh crore were sanctioned under the scheme, which was rolled out in May last year in the aftermath of the pandemic. Of this, as much as Rs 2.1 lakh crore is already disbursed under various avatars (ECLGS 1.0, 2.0 and 3.0) of this scheme, financial services secretary Debasish Panda said. Contact-intensive sectors have already received credit of Rs 4,000 crore. “Sector-wise details will be finalised as per evolving needs,” Sitharaman said.

From a scheme originally meant for MSMEs, the ECLGS has witnessed a substantial widening of its scope since its launch. Now, with the hike in the limit of assistance, the scheme will be able to better target those hit by the second Covid wave as well.

Last month, the finance ministry extended the validity of the ECLGS by three months through September 30 or until guarantees for the earlier limit of Rs 3 lakh crore were issued. Now, it’s expected to be extended further.

The Pradhan Mantri Gareeb Kalyan Anna Yojana (PMGKAY), under which 5 kg of food grains will be provided free of cost to NFSA beneficiaries from May to November 2021, will cost the government an additional Rs 93,869 crore in FY22. The FY22 Budget estimate for food subsidy is Rs 2.43 lakh crore. The free grains scheme, which was first implemented during April-November 2020 to mitigate hardship of people during the pandemic, had cost the government Rs 1,33,972 crore in FY21. The actual food subsidy spend in FY21 was Rs 5.25 lakh crore, Rs 1 lakh crore more than the revised estimate (RE).

On June 16, the Cabinet had approved a 140% increase in the subsidy on diammonium phosphate (DAP) and other nutrient based fertilisers for the ongoing kharif season, a move that could inflate the fertiliser subsidy bill for the current fiscal by Rs 14,775 crore. The Budget estimate for total fertiliser subsidy for the current financial year is pegged at Rs 79,530 crore, against Rs 1.28 lakh crore spent in FY21, with urea being the most commonly used and the most subsidised fertiliser.

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