Here’s What To Expect From The Rs 20 Lakh Crore Stimulus

The Rs 20 lakh crore package is inclusive of the earlier stimulus announced in March. It includes Rs 1.7 lakh crore package of free foodgrains to poor and cash to poor women and elderly and also the Reserve Bank's liquidity measures and interest rate cuts. The March stimulus was 0.8 per cent of GDP while RBI's cut in interest rates and liquidity measures adds up to 3.2 per cent of the GDP (about Rs 6.5 lakh crore).

Representational Picture (AFP)

New Delhi, May 13: Finance Minister Nirmala Sitharaman to shed more details later in the day regarding the much-awaited stimulus package Rs 20-lakh crore which was announced by Prime Minister Modi to revive the beleaguered economy hit by Covid-19 outbreak Touted as "atma-nirbhar Bharat abhiyan(a self-reliant India)", the combined package works out to roughly 10 per cent of the GDP. This makes India’s stimulus package among the most substantial in the world after the United States, which is 13 per cent of its GDP, and by Japan, which is over 21 per cent of its GDP, according to PTI. FM Minister took to Twitter to emphasis that the package broadly includes every section of the society from -a hawker/street vendor, a trader, a MSME, an honest tax paying middle class, a manufacturer etc.

She further added that it should not be just a financial package, but a reform stimulus, a mindset overhaul, and a thrust in governance.

What does the package include as of now? The Rs 20 lakh crore package is inclusive of the earlier stimulus announced in March. It includes Rs 1.7 lakh crore package of free foodgrains to poor and cash to poor women and elderly and also the Reserve Bank's liquidity measures and interest rate cuts. The March stimulus was 0.8 per cent of GDP while RBI's cut in interest rates and liquidity measures adds up to 3.2 per cent of the GDP (about Rs 6.5 lakh crore). Market analyst Basant Maheshwari in Twitter reacted to the package saying that RBI has given ₹7.8 lakh crore equity in the system. "It's 7.8 lakh crore - liquidity in the system but counted as stimulus. Else Govt doesn't have 20 lakh crore to give. Globally, also even QE though not cash in hands is counted as stimulus. So 7.8 (@RBI ) and 1.7 (DBT) we await the contours of the balance 10.5 lakh cr," he tweeted. "Includes the ₹10 lakh cr@RBI and ₹1.7 lakh cr by @nsitharaman still ₹8.3 lakh cr is huge considering our fiscal constraints," he said in another tweet. While economists have expressed concerns over the financing methods because large additional government borrowings from any of the sources may have implications on not just fiscal position but other macro indicators like inflation.

Here is what can be expected from the package? Tax breaks: It is being said that the package will focus on tax breaks for small businesses as well as incentives for domestic manufacturing. The tax relief for small, micro and medium enterprises will be aimed at boosting domestic manufacturing and attracting investments. The PM has clearly hinted at offering full tax exemption to companies which will make new investment of a minimum threshold, especially, in sectors such as medical devices, electronics, telecom equipment, and capital goods. It is expected that infrastructure investments may also be included in the package. Those sectors with the large domestic market will get more priority as it can help in fuelling employment. Credit guarantees:  It may offer credit guarantees to push lending to MSMEs while and some experts anticipate special purpose vehicle (SPV) with the government equity and RBI assistance to lend directly. MSMEs can get loan waivers and spur spending. Tax cuts and tweaking of GST along with personal income-tax rates may be looked upon in the package, according to experts. Land reforms: More importantly, land reforms will gain priority because easy access to land as well as labour reforms is expected to attract companies who are looking to shift base from China. With the state governments such as Uttar Pradesh, Gujarat and Madhya Pradesh already pushing for labour laws reforms, the recent push from the government for supply chains moving into the country from China, the stimulus will definitely push manufacturing going forward.