6 Key Takeaways from Covid Economic Relief Package by the Government

Last night when PM Narendra Modi addressed the nation, he announced a COVID special economic relief package of Rs. 20 lakh crores. He declared the advent of “Atma-Nirbhar Bharat Abhiyan” or Self-reliant India Mission, and said that in the coming days his government would unveil the details of a Covid economic relief package, worth 10% of India’s GDP.

At 4 pm today, our honourable Finance Minister Mrs. Nirmala Sitharaman started with her very anticipated speech regarding the Rs. 20 lakh crores economic package for making India “Atma-Nirbhar”. As per our FM, “The idea is not to make India an isolationist country, but to build a confident India capable of contributing to the world’s growth.” India’s “Atmanirbharta” or self-reliance will be based on the 5 pillars of growth like:

1. Economy
2. Infrastructure
3. Technology – Driven Systems
4. Vibrant Demography
5. Demand

6 Key Takeaways from Covid Economic Relief Package

Along with the five pillars of growth for a self-reliant India, the focus will also be on factors of production: Land, Labour, liquidity and Laws. The intention behind this, is to make local brands global and accelerate India’s capacity to build. Here’s the list of 6 key takeaways from Covid’s Economic Relief Package by the Government:

1. Collateral-free Loan for Micro, Small and Medium Enterprises (MSMEs)

In today’s speech, FM declared that the “Definition of MSMEs has been revised, investment limit to be revised upwards, additional criteria of turnover also being introduced”. This was done to curb the fear of growth in current MSMEs. Sitharaman announced Rs. 3 lakh crore worth of collateral free automatic loan to MSMEs and small businesses. The collateral-free loan will come with 100% credit guarantee and will restore the ability of 45 lakhs units to do business. They also come with a repayment tenure of 4 years and a no repayment timeline of 12 months.

Apart from this, the FM claimed that a Rs. 20,000 crore subordinate debt will be provided to the stressed MSMEs for daily operations. This step would help around 2 lakhs businesses which have lost the ability to do daily operations, buy raw material and pay employees. Global tenders won’t be allowed in case of projects that have a value of less than Rs. 200 crores to scale up domestic participation. In addition to this, a fund of funds will also be created that will be infusing up to Rs. 50,000 crores of equity in MSMEs showing growth potential.

2. Support to NBFCs, HFCs and MFIs

FM announced that NBFCs that are struggling in doing business transactions during COVID will be given a special support of Rs. 30,000 crores under the special liquidity scheme. Investments under this special liquidity scheme will be made in both primary and secondary market transactions, in investment grade debt papers of Non-Banking Financial Companies (NBFCs), Housing Finance Companies (HFCs) and  Microfinance Institutions (MFIs). 

This step to increase liquidity is in spirit with RBI’s step to support Mutual fund houses by giving them a special liquidity facility worth Rs. 50,000 crores. As per Sitharaman, “A lot of these stressed NBFCs support the MSMEs with working capital requirements and will help the liquidity supply chain intact thereby helping the MSMEs also to tackle deal with situation.”

In addition to that, the Finance Minister has introduced Rs 45,000 crore Partial Credit Guarantee Scheme 2.0 for NBFCs. NBFCs, HFCs and MFIs who have low credit rating require liquidity to lend money to MSMEs and individuals under the Partial Credit Guarantee Scheme 2.0. Government has also declared that low ratings papers, including unrated papers will be eligible for investment. This will help in infusing liquidity in NBFCs and in turn, in MSMEs.

3. Good News for Salaried Individuals – Reduction in EPF

The government has actively taken measures to provide relief to salaried individuals across all sectors. With the heavy salary deductions and lay-offs being faced by individuals across all industries due to COVID, the government has tried to provide a cushion against the economic repercussions of the pandemic. In order to increase the take home salary of employees, the government has reduced the statutory EPF contribution rate from 12 % to 10% for the next 3 months for the private sector.

Along with this, the government also announced the 3-month extension of the scheme where the government is paying the contribution of both the employee and the employer, for enterprises that have less than 100 people. The extension is a continuation of the EPF relief provided to employers which was ending on May 31, 2020. The FM on March 26, 2020 announced that wage-earners below Rs 15,000 per month in businesses having less than 100 workers are “at risk of losing their employment”. Hence, the EPF reduction will help salaried individuals in taking more money home.

4. Reduction in TDS for Non- Salaried Income

In the latest speech, FM announced that the Tax Deducted at Source (TDS) will be reduced by 25% for non-salaried income. This step has been taken to increase the amount of money in-hand of the taxpayers. Sitharaman said, “We think this measure will release liquidity of Rs 50,000 crore who otherwise would have paid the tax”.

This money can then be used for payment for contract, interest, rent, dividend, professional fees, commission and brokerage income. This reduced rate will be applicable from tomorrow onward till 31st March 2021. This is one of the most important takeaways from Covid’s Economic Relief Package.

5. Income Tax Return Filing Date Extension

The rates for filing the Income Tax Returns have been revised from 31st July 2020 to 30th November 2020. In addition to this, the dates for Vivaad Se Vishwas schemes is extended to 31st, December 2020 without making any extra payments. Date of assessments getting barred as on Sep 30th, 2020 extended to December 31st, 2020. Last but not the least, Date of assessments getting barred as on March 31st, 2021 have received an extension up to September 30th 2021.

6. Relief to Contractors and Real Estate Developers

In her speech, Sitharaman announced that all central agencies will give an extension of 6 months to contractors for completing their work. This includes all central agencies like – Railways, Ministry of Road Transport & Highways, Central Public Works Dept, etc.  In addition to the extension, the government agencies will also partially release bank guarantees so that contracts can be partially completed and cash flows can be eased. 

The economic package also had good news for real estate developers with the timelines for real estate projects getting a revision. All projects under RERA that were expiring on 25th March or after can be extended suo-motto by 6 months. This can be extended by another 3 months if needed, depending on other factors. Fresh project registration certificates will be issued with revised timelines soon.

This concludes the list of the key takeaways from the government’s Covid economic relief package. Now, the mission to make India self-reliant begins!