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Analysis of Fiscal Stimulus 2.1

India's Fiscal Stimulus 2.0 – 1st instalment


A. Micro Small & Medium Enterprises (MSMEs)

  • Collateral Free Loans (₹ 3 Lakh Cr.)

  1. 4 year tenure;

  2. Moratorium of 12 months;

  3. 100% credit guarantee;

  4. Can be availed by 31st Oct’20.

  • Provision of Subordinate Debt (₹ 0.2 Lakh Cr.)

  • New definition of MSME:

  • Fund of funds to facilitate equity infusion in potential MSMEs (₹ 0.5 Lakh Cr.)

  • Government will not issue global tenders for procurement of up to ₹ 200 Cr.

  • Promotion of E-market linkages (ecommerce platform) to replace trade fairs and exhibitions during Covid-19 and beyond. Fintech to facilitate transaction based lending.

B. Provident Fund

  • PF relief provided under the first fiscal stimulus, now extended by another 3 months (upto Aug’20)

  1. Government will contribute entire PF contribution of Employer and Employee from Mar’20 to Aug’20;

  2. Total number of workers in organisation should be < 100;

  3. 90% of workers should have salary < ₹15,000 per month.

  • For other companies (other than government companies) – rates of contribution of employer and employee reduced to 10% from 12% resulting in higher take home.

C. Power Distribution Companies

  • PFC/REC to infuse ₹90,000 Cr. against receivables;

  • Loans to be given against State guarantees for exclusive purpose of discharging liabilities of Discoms to Gencos;

  • Central Public Sector Generation Companies shall give rebate to Discoms which shall be passed on to the final consumers;

D. Income Tax

  • TDS & TCS rates reduced by 25% from 14th May’20 up to 31st Mar’20;

  • Pending refunds to Charitable Trusts, Proprietorship & Partnership Firms, Cooperative Societies & LLP to be released immediately;

  • Due dates of ITR & Tax Audit extended:

  • Vivad Se Vishwas Scheme (for settlement of pending disputes) validity extended further to 31st Dec’20.

  • Assessment dates extended.

E. Government Contractors

  • Extension of up to 6 months to be provided by all central agencies to all contractors;

  • Includes Railways, Ministry of Road Transport & Highways, Central Public Works Dept., etc.

  • Covers construction contracts, works contracts and supply of goods & services;

  • Also covers extension of concession period in PPP contracts;

  • In case of partially completed projects – government will partially release bank guarantee.

F. Real Estate

  • Treat Covid-19 as an ‘act of God’. Accordingly, Force Majeure clause under contracts can be enforced;

  • Suo-moto extension of registration and completion dates by 6 months, without individual applications;

  • Timelines for various statutory compliance under RERA extended.

Cost to the Government: ₹2,500 Cr. (towards PF contribution). Through the various guarantee schemes, the govt. has delayed its burden. Rest all measures are in the form of liquidity infusion which prima-facie does not entail any additional cost to the govt., other than the time value of money.

Liquidity to NBFC/HFC/MFI

A. ₹30,000 Cr. - Special Liquidity Scheme

  • Primary & secondary market transactions;

  • Investment grade debt papers;

  • Fully guaranteed by the GOI.

B. ₹45,000 Cr. - Partial Credit Guarantee Scheme

  • Under this scheme, public sector banks purchase pooled assets from NBFC/MFI/HFC;

  • Assets with rating less than AA or which are even unrated can be monetized;

  • First 20% of the loss will be borne by the GOI.

Who will Benefit?

  • Rural Women Groups

  • Rural Households

  • Farmers

  • Agricultural Undertakings

  • Self Help Groups (SHG)

  • NGOs

  • Non-Profit Organisations

  • Cooperative Societies

  • MSMEs

  • Home Buyers

Cost to Govt.: Nil.
Our Take: Liquidity scheme for NBFC/MFI/HFC can stir a wave of credit disbursement to shadowed sectors. To spell out the right intention of the policies here, the government wants people and institutions to invest in risky debt instruments, MERELY COVERED BY THE GOVT. So let’s not mistake it for the govt subscribing to these papers themselves.

Are these measures good enough?

A comparison with other countries


We Ask

On 12th May, the PM addressed the nation with specific emphasis on the ₹20 Lakh Crore stimulus offered by the Government. Excited as we were, at 4PM, 13th May, almost the entire nation was glued to the television, looking forward to the tons of benefits the government has in store for the poor and the troubled. However, the first instalment of the new fiscal stimulus has not been able to satisfy the demands of the masses. The disappointment is evident from commentaries of State officials, entrepreneurs, salaried individuals and the poor. In this backdrop, we ask:

  • Is it enough to give guarantee on loans when businesses are looking for immediate cash grants? While the entire country is facing its 4th extended lockdown, millions of MSMEs, running on thin margins, are barely able to survive. And if the lauded Make in India program of the government was up to real good, are these measures sufficient to ensure survival of Indian MSMEs?

  • The CMIE reported a heightened unemployment rate of over 27% amid the Covid-19 crisis. Businesses have little incentive to retain employees as the government has barely extended a hand to meet employee costs. Why can’t the government extend the PF contribution benefit to all the employees with earnings up to ₹15,000, without conditions? Why can’t the Government role out direct unemployment benefits to the migrant workers?

  • Countries across the world have recognized that tourism, transportation and other related sectors are the worst hit by the ensuing pandemic. Various relief measures ranging from waiver of taxes, utility bills etc. have come as some relief to the struggling businesses. Will these be looked after in the upcoming instalments of the new stimulus?

  • Businesses and individuals alike have vented out their disappointment with the lack of relief offered by the new fiscal stimulus. The government has tried its level best by doling out a range of liquidity measures. But, amidst rising fiscal spending, the big question is – will the government treasury be able to sustain if all demands are met?


The entire document can be viewed here.


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