PM Modi’s special economic package for self-reliant India | LIVE Updates: Over the course of last week, the Narendra Modi-led government not only announced a Rs 21 lakh crore economic package to help the country tide over the coronavirus crisis, but it also laid a roadmap to achieve a self-reliant economy. In her five press conferences in the last week, Finance Minister Nirmala Sitharaman announced several measures for MSMEs, street vendors, migrant labours, and farmers, among others, while also announcing liberalisation and reforms in sectors such as coal, minerals, defence production, air space management, airports, etc. Major reforms were rolled out for the agriculture and allied sector too with the aim to strengthen the sector which employs about 60% of India’s population. While the overall package stood at Rs 20,97,053 crore, the biggest chunk worth Rs 8.01 lakh crore of the economic package belonged to the various measures by the Reserve Bank of India in February, March and April this year as the government looked to boost liquidity. Several industrialists such as Paytm’s Vijay Shekhar Sharma and Mahindra group chairman Anand Mahindra earlier lauded the Prime Minister for rolling out the economic package as India also suffers the economic consequence of a lockdown.
Modi’s Rs 21 lakh crore economic package details revealed; now, all eyes on successful rollout
PM Modi’s special economic package for self-reliant India LIVE Updates: Over the course of last week, the government not only announced a Rs 21 lakh crore economic package, but it also laid a roadmap to achieve a self-reliant economy.
Finance Minister Nirmala Sitharaman recently announced that PSU companies will stay only in strategic sectors and the government will soon notify the list of those sectors. While FM Sitharaman has yet not revealed the list of strategic sectors, policy experts believe defence, space exploration, oil & gas, atomic energy, telecom etc can be the key areas in which the government would want to keep PSUs active. The government has also said that each of the notified strategic areas will have a maximum of four PSUs, and the remaining state-run companies would be either merged or privatised. While speculations on the strategic sector go on, discussions on the uphill task of merging a large number of PSUs have also taken a front seat.
Equity strategists and economists expect India’s government will have to spend more to revive the economy as steps so far aren’t sufficient with investors’ focus shifting to worsening macro indicators. India’s government extended its nationwide lockdown until May 31, while further easing restrictions in certain sectors to boost economic activity, as coronavirus cases escalate across the country.
A $265 billion virus rescue package is equivalent to 10% of India’s gross domestic product, but some economists estimate the additional government spending is only about 1% of GDP. Infections are surging across the nation of 1.3 billion people, with more than 95,698 infections, including 3,025 deaths, according to data from Johns Hopkins University, Bloomberg reported.
The government’s reform moves and stimulus package will only help the deeply-impacted growth process in the medium term of over three years and will not push up the GDP in the short term, analysts at two foreign brokerages said on Monday. The analysts at Bank of America (BofA) and Nomura maintained their earlier GDP estimates suggesting a contraction of 0.1 per cent and 5 per cent, respectively, for FY21 even after the announcement of the Rs 20 lakh crore economic package.
Even as the centre’s economic package aims to deliver more than just the coronavirus response, experts believe that the immediate fiscal push by the government should have been higher in order to spur growth in the near-term. “We reckon while medium-term reforms are imperative, a more rigorous direct fiscal push is needed to create immediate effective demand in the economy,” Madhavi Arora, Economist, Edelweiss.
A report by Barclays highlighted that the government’s fiscal support programme, which sums up to Rs 21 lakh crore including Rs 8 lakh crore of measures announced by RBI, will make the actual fiscal impact of only Rs 1.5 lakh crore, which is 0.75 per cent of GDP.
The fourth tranche of announcements also included champion sectors and the incentive schemes for the promotion of new champion sectors will be launched in sectors such as solar PV manufacturing, advanced cell battery storage, etc.
FM Sitharaman brings commercial mining in the coal sector, the government's monopoly has been removed to make coal available on market prices.
Prime Minister Narendra Modi’s special economic package, expected to generate economic benefits equivalent to 10 percent of GDP, is likely to cost the government not even 1 percent of GDP. The huge difference between the benefits and the actual cost is due to the non-material benefits such as bank guarantees and permissions given in the major announcements. The total policy support of Atmanirbhar Bharat stands at nearly Rs 11 lakh crore, with a direct fiscal impact of mere Rs 1 lakh crore (0.5% of GDP). With this, the overall economic package stands at mere 0.8 per cent of GDP, said Madhavi Arora, Economist, Edelweiss.
On Sunday, the finance minister allocated an additional Rs 40,000 crore for the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) for job creation in India’s hinterland. The government had earlier allocated Rs 61,000 crore in the budget for this financial year. Sitharaman also announced the formulation of a new Public Sector Enterprises Policy that would allow for consolidation of the PSU firms in strategic sectors. Each sector would have up to four such firms while state-owned enterprises will be privatized. For improved ease of doing business among MSMEs, the minister extended the initiation period of fresh insolvency proceedings against MSMEs by six months to up to one year along with excluding Covid-19 related debt from the ‘default’ category under the IBC Code.
Coal bed methane extraction will be auctioned. Rs 50,000 crore will be spent by the government towards evacuation infrastructure.
Government increases FDI limit in defence manufacturing under the automatic route from 49% to 74%. Also, time-bound defence procurement process and faster decision making will be ushered - FM Sitharaman
The fourth instalment of the Rs 20 lakh crore package comprised of reforms for sectors including coal, minerals, defence production, air space management, airports, MRO, distribution companies in UTs, space sector, and atomic energy. Nirmala Sitharaman on Saturday announced easing utilization of the Indian air space to reduce air travel cost. The minister also announced the commercial mining in the coal sector and privatizing discoms in metros to streamline their functions for better accountability. The minister also talked about private participation in the space sector along with coming up with a policy for private players.
Aviation sector to get benefit of Rs 800 crore to Rs 2,000 crore from aircraft maintenance and airframe repair in country from MRO hub.
Government to establish a research reactor in the PPE model for the production of medical isotopes. India has earned a lot of goodwill from countries where India has exported them. - FM Sitharaman
Other key announcements made by the finance minister included Rs 20,000 to be provided to fishermen through Pradhan Mantri Matsya Sampada Yojana, and Rs 10,000 crore to formalize micro food enterprises. “This will be a cluster-based approach, with which, local value-added products can reach global markets,” the minister had said. Rs 4,000 crore for herbal cultivation, a Rs 15,000 crore Animal Husbandry Infrastructure Development Fund, Rs 500 crore for bee-keeping related infrastructure development were other packages announced by the minister.
Other key announcements made by the finance minister included Rs 20,000 to be provided to fishermen through Pradhan Mantri Matsya Sampada Yojana, and Rs 10,000 crore to formalize micro food enterprises. “This will be a cluster-based approach, with which, local value-added products can reach global markets,” the minister had said. Rs 4,000 crore for herbal cultivation, a Rs 15,000 crore Animal Husbandry Infrastructure Development Fund, Rs 500 crore for bee-keeping related infrastructure development were other packages announced by the minister.
Government is taking steps to leave more money in the hands of people now, which will boost demand - FM Sitharaman said earlier
Finance Minister Nirmala Sitharaman ended the government’s monopoly on coal by allowing commercial mining to introduce competition, transparency, and private sector participation through a revenue-sharing mechanism in the coal sector. In the fourth tranche of the announcement under the Atma-Nirbhar Bharat mission, FM Sitharaman removed the regime of fixed rupee/tonne pricing of coal. The Finance Minister added that the economy will benefit from the opening up of the coal sector.
The third tranche of the measures worth Rs 1.5 lakh crore focused on the agriculture and allied sectors including dairy, animal husbandry and fisheries as the government announced steps to strengthen the overall farm sector. Sitharaman announced Rs 1 lakh crore agriculture infrastructure fund for farm-gate infrastructure including using it for setting up cold chains and post-harvest management infrastructure.
Finance Minister Nirmala Sitharaman in the fourth tranche of measures of Rs 20 lakh crore special economic package, announced the policy reforms to fast-track investments, in Prime Minister Narendra Modi’s quest to make a nation self-reliant economic powerhouse. The government will identify new champion sectors to pump in more investments, which can then drive the country’s economic growth. In the last couple of months, the government formed an empowered group of secretaries (EGoS), which is now working on identifying project development areas, and forming project development cells in various ministries.
FM's announcement does breathe some life into the pandemic hit civil aviation sector, but no mention of bailouts on an immediate basis may attract mixed response from the industry. Though, easing curbs on airspace would certainly bring in long term efficiency and on an immediate basis some relief to the airlines, but a more meaningful intervention may be required if the aviation sector is not on the recovery path soon. The announcement on mixed use of MRO and rationalisation of tax regime for MRO ecosystem will be pivotal in incentivising the MRO business and unleashing its potential owing to India’s strategic location – great move: Ajay Sawhney, Partner, Cyril Amarchand Mangaldas
All these reform measures announced are positive for investment which will be accrued over time and may not be in FY21 as banks may not like to lend to those who are already asking for moratorium: CARE Ratings
These announcements are spread over multiple years and hence their immediate impact may again be limited. Fiscal impact also seems very small for the current fiscal. Some of these may require legislative approval, states’ cooperation and signal from judiciary about being quick in decision making and being fair to bidders/general businessmen. Also a lot of these measures need not have waited for Covid 19. Measures related to power generation and distribution and mining are welcome as they can make an impact fast if states get on board soon leaving aside their political compulsions. Measures on defence and space will lead to an uptick in stock prices of some companies for a few days but here again, one will have to watch as to how fast intent is converted into execution: Dhiraj Relli, MD & CEO, HDFC Securities
Nirmala Sitharaman’s second tranche of measures catered to migrant workers and street vendors. The minister introduced ‘one nation one ration card’ to allow migrant workers to buy ration from any depot in the country. A special credit facility of Rs 5,000 crore was announced to support around 50 lakh street vendors who will have access to an initial Rs 10,000 working capital.
The first set of relief measures announced by Nirmala Sitharaman focused on enabling the Indian economy’s backbone – MSMEs that employ around 11 crore people and have a GDP share of approximately 29 per cent.
FM's structural reforms announcements today take the policy of going "vocal about local" forward. Indigenization of imported spares, corporatization of Ordnance Factory Board & listing in the stock exchange are indeed bold structural reform measures. Raising the FDI limit in defence manufacturing will help in technology transfer and will be a major boost for domestic manufacturing. Auctioning of 6 more airports and privatisation of Discoms in UTs are welcome. In brief, liberalisation in fast forward mode: VK Vijayakumar- Chief Investment Strategist- Geojit Financial Services
The overall package which stood at Rs 20,97,053 crore, included the Rs 1.92 lakh crore stimulus from measures announced by Modi recently such as the Pradhan Matri Garib Kalyan Package worth Rs 1.7 lakh crore.