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The government on Wednesday announced a nearly Rs 6 lakh crore package, including Rs 3 lakh crore of collateral-free loans for small businesses and a Rs 30,000 crore lifeline to non-banking and housing finance companies as part of measures to help the economy tide over disruptions caused by the coronavirus lockdown.
Also, it cut the tax rate on non-salary payments by 25 per cent, extended support to companies to meet statutory liability on employees' retirement fund, provided a Rs 90,000 crore bailout to cash-starved electricity distribution companies and gave construction firms up to six more months to complete government projects.
Announcing the first set of components of the Rs 20 lakh crore COVID-19 economic stimulus package announced by Prime Minister Narendra Modi, Finance Minister Nirmala Sitharaman said the measures will help "spur growth and build a very self-reliant India".
"It addresses ease of doing business, compliance, and due diligence and the intention is also to build local brands," she said.
The Rs 20 lakh crore spending, including ones previously announced and the Reserve Bank measures, is seen as the government's attempt to check the world's fifth-largest economy hurtling towards its first full-year contraction in four decades.
Sitharaman said automatic collateral-free loans of a 4-year tenure with a 12-month moratorium on interest payment, will benefit 45 lakh small businesses.
Another two lakh such businesses would benefit from a Rs 20,000 crore subordinate debt for stressed or loan defaulting MSMEs, she said, adding that a fund of funds for MSMEs is also being created, which will infuse Rs 50,000 crore equity in units that have growth potential.
Also, the definition of MSMEs has been changed from a pure investment-based one to that provides for higher investments and turnover for companies to remain as small businesses, and avail financial and other incentives.
Besides, an estimated Rs 1 lakh crore in dues to MSMEs by government and central PSUs will be released within 45 days.
Small and mid-sized businesses in India account for about a third of the gross domestic product and employ more than 11 crore people, and the package announced on Wednesday is aimed at helping them overcome coronavirus disruptions.
The finance minister announced a Rs 30,000 crore special liquidity scheme for non-banking finance companies, housing finance companies and micro-finance institutions that are finding it difficult to raise money in debt markets.
Further, a Rs 45,000 crore partial credit guarantee scheme 2.0 was also announced for NBFCs, HFCs, and MFIs with low credit rating to help them extend a loan to individuals and MSMEs.
In a relief to contractors, she announced up to six months (without costs to contractor) to be provided by all central agencies like railways, road transport ministry and central public works department to finish construction works, and goods and services contracts.
For electricity distribution companies, she said the State-owned Power Finance Corp (PFC) and Rural Electrification Corp (REC) will infuse Rs 90,000 crore liquidity against receivables, subject to discoms undertaking reforms such as digital payments.
Most economic activity in the country had come to a standstill after the government imposed a 21-day nationwide lockdown beginning March 25 to check the spread of coronavirus. The lockdown has since been extended twice through May 17, with some relaxations to allow for resumption of economic activity.
According to estimates, the lockdown may have led to 12.2 crore people losing jobs in April and consumer demand evaporating.
In order to provide more funds at the disposal of the taxpayers, the rates of Tax Deduction at Source (TDS) for non-salaried specified payments made to residents, and rates of Tax Collection at Source (TCS) for the specified receipts have been cut by 25 per cent of the existing rates for the remaining part of the 2020-21 fiscal.
This relief will cover payment for contract, professional fees, interest, rent, dividend, commission, and brokerage, she said, adding that the measure will release liquidity of Rs 50,000 crore.
Also, the due date of all income-tax return for FY 2019-20 will be extended from July 31, 2020, and October 31, 2020, to November 30, 2020, and tax audit from September 30, 2020, to October 31.
In a bid to leave more cash with companies, Sitharaman said the scheme of the government paying statutory retiral benefits of certain establishments is being extended by three months to August. This will provide Rs 2,500 crore of liquidity relief to 3.67 lakh establishments and for 72.22 lakh employees.
Also, the statutory provident fund (PF) contribution of both employer and employee will be reduced to 10 per cent from the existing 12 per cent each for all establishments covered by Employees' Provident Fund Organisation (EPFO) for the next three months.
"This will provide relief to about 6.5 lakh establishments and provide liquidity of Rs 6,750 crore to employers and employees over 3 months," she said, adding central PSUs will, however, continue to contribute 12 per cent as an employer contribution.
The prime minister had on Tuesday evening announced the raising of spending to Rs 20 lakh crore or about 10 per cent of India's GDP, to help the economy get back on its feet after weeks of lockdown. This includes Rs 1.7 lakh crore, or 0.8 per cent of GDP, the package of free foodgrains, and cash to poor, and liquidity boosting measures by the Reserve Bank of India (RBI) which make up for some 3.5 per cent of the GDP.
These are the highlights of the package announced by Finance Minister Nirmala Sitharaman on Wednesday.