Nivesh.com Logo - Best Online Platform for Mutual Fund Investment
English Hindi
Chat with Nivesh.com
English Hindi

Indian Government Announces Rs.6.28 trillion Booster Dose to Induce GrowthOn Monday 28 June 2021, the Union Finance Minister Nirmala Sitharam announced an Rs.6.28 trillion booster package with the primary intention to induce economic growth whilst keeping fiscal expenditure under control. The package is focused on a new credit guarantee for health, tourism & micro borrowers, expansion of the Emergency Credit Line Guarantee Scheme (ECLGS) by half to Rs 4.5 trillion, and extension of the Aatmanirbhar Bharat Rozgar Yojana. Special focus will be placed on enhancing healthcare facilities for children as experts are predicting the 3rd wave will majorly impact children.

Credit Guarantees

Extension of credit guarantees amounting to Rs.2.6 trillion and deployments of schemes worth Rs.2.4 trillion are expected over the next 2 to 4 years. Fiscal expenditure estimates for the fresh announcements in the current financial year are expected to be Rs.60,000 crore excluding the credit guarantee schemes. 

Rs.1.1 trillion loan guarantees have been announced for sectors that were impacted by the pandemic out of which Rs.50,000 crores will be utilized towards improving medical infrastructure in non-metropolitan cities. 

Under this scheme, loans will be provided up to Rs.100 crore for 3 years with an interest capped at 7.95%. Guarantee coverage would be 50% for expanding facilities and 75% for new projects. The balance Rs.60,000 crore has been set aside for credit guarantee in other sectors including travel and tourism with the interest rate being capped at 8.25%.

Rural Economy & Micro Borrowers Support

To support the rural economy of India, the government has announced a separate credit guarantee scheme to finance loans through microfinance institutions (MFIs). The government will provide guarantees to scheduled commercial banks for loans to new or existing MFIs on lending up to Rs 1.25 lakh, targeting about 2.5 million small borrowers.

The interest rate under the scheme will be capped at the marginal cost of funds-based lending rate (MCLR) plus 2%.

Sitharaman stated that “borrowings can be made for any purpose and defaults of even 89 days will be covered.” This scheme will be available till 31st March 2022 or until Rs.7,500 crore guarantees are exhausted, whichever is earlier. This will encourage banks to lend to individuals that are in need of working capital in order to start or support their operations and will also encourage adequate liquidity to be available through various financial institutions to small and large enterprises.

Emergency Credit Line Guarantee Scheme

Apart from the 2 credit guarantee schemes, the government has expanded the ECLGS by providing an additional Rs.1.5 trillion, over and above the Rs.3 trillion announced last year. To date Rs.2.73 trillion has been disbursed to 11 million enterprises under the scheme.

Medical Infrastructure

To safeguard children against the potential 3rd wave, the government has allocated Rs.2.32 trillion with emphasis on children and pediatric care. Its focus will be on increasing the availability of ICU beds, oxygen supplies at central district and sub-districts, ambulance services, medicines, and teleconsultation with a primary focus on children.

Allocations under this scheme are expected to be made immediately available to the Ministry of Health for distribution to states under the National Health Mission.

Travel & Tourism Sector

Tourism has been one of the most severely impacted sectors during COVID. To help revive this industry the government has accounted a two-fold measure. The first being a credit guarantee for travel agencies and tourist guides and 5,00,000 free visas for travelers up to 31 March 2022. 10,700 travel agencies and tourist guides that are recognized by the Ministry of Tourism and state governments will be covered under this scheme.

A credit guarantee to the extent of 100% will be provided for loans of Rs.10,00,000 and Rs.1,00,000 for travel agencies and tourist guides respectively. It is expected that this scheme will introduce much-needed liquidity to the tourism sector and is expected to accelerate its revival.

Atmanirbhar Bharat Rozgar Yojana 

Finally, the government also extended the Atmanirbhar Bharat Rozgar Yojana by six months to March 31, 2022. Under the scheme, 25% of the wages are paid by the government for those who draw Rs 15,000 or less per month in establishments with 1,000 or fewer employees. In the case of more than 1,000 employees, 12% of wages will be paid by the government.

Exports

The government also announced fund allocation of Rs33,000 crore towards project exports through the National Export Insurance Account, by extending risk coverage to promote medium and long-term exports. The amount will be provided over five years.

For merchandise exports, an equity infusion of Rs.88,000 crore over five years will be provided.

The booster package is expected to accelerate economic growth and aid the recovery of the Indian economy after the 2nd COVID wave. Its benefits are manifold:

  • Extension of credit guarantees and deployment of fresh funds to help reduce financial pressures and aid COVID stressed sectors
  • Much needed liquidity will be made available to the rural economy through credit lines to MFIs.
  • Increased liquidity for micro borrowers has also been made available with no limits on the purposes of funds required.
  • Development of medical infrastructure to be able to better tackle the predicted 3rd wave of the virus with a special focus on child & pediatric care
  • Revival of the travel & tourism sector
  • Ensure unemployment does not rise by extension of the government’s Atmanirbhar Bharat Rozgar Yojana 
  • Liquidity infusion to support the exports sector, particularly in the medium to long term, to ensure fiscal inflows.
  • Extension of ECLGS to ensure ample liquidity in the economy