Fiscal Stimulus Package

Tranche 1 announced by FM

The Prime Minister Shri Narendra Modi has announced a special economic package called ‘Atmanirbhar Bharat’ or ‘Self-reliant India’.

The headline stimulus number is ahead of market’s expectations. The PM mentioned that this package, taken together with earlier announcements by the government during COVID crisis and decisions taken by RBI, is to the tune of Rs 20trn (US$267bn), which 10% of India’s GDP.

The package will also focus on land, labour, liquidity and laws. It will cater to various sections including cottage industry, MSMEs, labourers, middle class and industries.

Considering COVID-19 is first a supply shock and then a demand shock, we believe fiscal policy measures could be more effective than monetary policy to support the economy at the current juncture.

The combined support announced by both the RBI & the government till date has been to the tune of Rs7trn (3.4 % of GDP). The remaining Rs13trn (6.2% GDP) is now the policy space left

We estimate that a part of this package (5% GDP) is already under implementation through RBI’s pre-announced liquidity measures and a mini package announced by the govt. The incremental package would be 5% of GDP

The PM mentioned that the focus of government support will be to the MSME and agricultural sectors.

The PMs mention of making structural reforms is interesting. He has targeted reforms in land, labour, capital and laws going ahead.

More importantly a few states such as UP, MP, Gujarat etc. have already taken some labour law reforms such as freezing major labour law applicability for a few years which give industries more flexibility in hiring and firing employees, determining their wages, and reducing their liabilities in terms of providing employee benefits.

Measures announced by FM Nirmala Sitharaman

Tranche 1

The FM announced the following measures in her press conference. Some of the key highlights are as follows –

For MSMEs, collateral Free Automatic Loan for MSME. Those MSME having loan up to 25 crs and turnover up to 100 crs will be covered in this scheme.

A 100% Central Govt Guaranteed. This will help 40 Lac Units. This loan will be for 4 years with a Moratorium of 12 Months.

The government expects 45 Lakh MSME Units to get benefit from It. Total 3 Lakh crs loan will be given under this scheme. This can be availed till Oct. 31.

For another set of MSMEs, Rs 20000 crs will be infused as subordinate debt for stressed MSMEs.

The government expects 2 lakh SMEs will get benefit from this. Govt will provide 4000 cr to the CGTSME Trust.

For more stronger MSMEs, the government has evolved a Fund of Fund to be created. Rs 50000 crs will be infused as equity to standard MSME players. This will help them to expand their capacities.

To ensure that MSMEs continue to get tax benefits the government has changed the definition of MSME wherein investment Limit which defines a SME is changed.

Now Turnover criteria is also introduced. Different between manufacturing and service SME is removed. Micro Units- Investment limit increased to Rs 1 crs from Rs 20 lacs

And Turnover can be up to Rs 5 crs. For Medium Enterprises the limit has been increased to Rs 10 crs Investment and turnover of Rs 50 crs, 20 crs and Rs 100 crs.

To give local producers some more edge in bidding tenders up to Rs 200 crs, the government procurement will be from such local players & not global tenders any more.

Additionally e-market Linkage will be Provided to all MSME due to less possibility of Trade fares. All Central Govt outstanding will be cleared within 45 Days by Govt Help of all MSME.

The Government had paid EPF Payments for Mar, April and May. This is being extended by another 3 Months. 12%+12% will be paid by Govt of India.

Also the EPF contribution reduced from 12% to 10% for those organisation having more than 100 employee is done now.

For NBFCs, MFI, HFC the government has opened a special Rs 30000 crs liquidity window. Here govt will buy debt papers of these institutions even if investment grade. These will be fully guaranteed by govt of India.

Additionally the government will give Rs 45000 crs additional liquidity to NBFCs. Here the first 20% loss will be born by Govt of India. Even unrated papers will get money under this scheme.

The government has also provided reliefs to Discoms. Discoms were not able to pay the power generation companies.

Here a one time emergency liquidity infusion via a Rs 90000 crs special fund to be created to pay all outstanding of power generation companies. PFC and REC will give this money

For contractors, the government has given a 6 month extension to all Govt contractors of Railways, Roads, Other departments.

Govt agencies will partially release bank guarantees to the extent of work completed. This will improve there liquidity issues .

Another relief from the government has come in for the real-estate sector.

Here it has stated that Covid19 can be treated as act of God. Using the Force Major Clause the project registration will be extended by 6 Month automatically.

Completion dates of existing projects to be extended automatically by 6 months by govt authorities.

Some other tax related announcements include non salaried TDS and TCS rates to be reduced by 25% from existing rates. This will be effective from 14th May 2020 and will remain till 31-03-2021.

All Pending Refunds will be issued immediately to all even above 5 Lakhs. For AY 2020-21 the ITR Dates extended to 30th Nov 2020, And Tax Audit Date extended to 31st October 20

Assessments getting barred on 30 September 2020 will get barred on 31 December 2020.

Cases getting barred on 31 March 2021 will get barred on 30 September 2021

Vivaad se Vishwaas scheme extended upto 31 December 2020 without any extra payments

This is the first tranche of the Rs 20 lacs crs package announced by the government.

We understand that this first tranche will not hit the governments finances badly as the Rs 3 lakh crore collateral free loans to MSMEs would be disbursed by banks with a 100% government guarantee.

Since there would be a moratorium for 12 months, there will be no default in 2020-21.

This Rs 3 lakh guarantee will crystalise only when there is a default, which cannot happen before next financial year. So there will be nil outgo from exchequer in current financial year.

Similarly, the Rs 20,000 crs subordinate debt provision for MSMEs is by way of a contribution of only Rs 4000 crore to the fund.

This guarantee will come from Credit Guarantee Fund Trust for micro and small enterprises (CGTMSE).

This Rs 4000 crs contribution by government would lead to banks offering credit upto Rs 20,000 crs.The outgo from exchequer would be only Rs 4000 crs.

In addition, the Rs 90000 crs infusion by Rural Electrification Corporation (REC) and Power Finance Corporation (PFC) will come on the head of these institutions.

The guarantee is not by central government but by the state governments. Again the hit on exchequer will be nothing.

The Rs 30000 crs special liquidity schemes for NBFCs, HFCs and MFIs are also fully guaranteed by the government. Under this also, there is no outgo from the government exchequer.

Similarly, the Rs 45000 crs liquidity under the partial guarantee scheme for NBFCs has guarantee element of only 20% which would be borne by the government. Here again guarantee would crystalise only later or next year.

The next 2 tranches of the Rs 20 lac crs package will be announced in the coming 2 days.

Our View –

Net net we believe that the first tranche of stimulus measures announced will help the MSME, power generating companies & real estate sectors in the longer term

The key challenges in the near term will be the transmission of the Rs 3 lakh crs in collateral-free government-backed loans to MSMEs which will mostly flow through the NBFC sector and can be refinanced via banks

Also benefits given to the NBFC sector would of great help to smaller NBFCs if credit flows to them first otherwise it could well go to top rated NBFCs which are already flush with funds.

Here players like Bajaj Finance, PEL could stand to gain.

The measures announced for the real estate segment will de-stress real estate developers and ensure completion of projects so that homebuyers are able to get delivery of booked houses with new timelines,

However there is nothing that would revive the demand for reality sector which is already in a problem as only the time line for possession date has been extended by six months and that wouldn’t solve the problem for developers especially as regards cash flow-related challenges faced by developers.

Finally for discoms, the move to provide liquidity will in turn be positive for sector lenders like PFC, REC, and power generator companies like NTPC, NHPC, SJVN, Power Grid Corporation and other private power players to reduce working capital.

Tranche 2 announced by FM

Measures announced by FM Nirmala Sitharaman

The FM announced the following measures in her press conference. Some of the key highlights are as follows –

The FM has decided to give direct support to farmers and rural economy through loan moratorium, interest subvention.

2.5 mn new Kisan credit cards sanctioned aggregating to a total limit of Rs 25000 crs

Thjis will benefit around 2.5 crs farmers with a estimated credit flow to the tune of Rs 2 lac crs.

Liquidity support to farmers and rural economy has been provided via a Rs 42 bn Rural Infrastructure Development Fund provided to States for rural infrastructure

The central government has also released Rs 110 bn of its SDRF contribution to states.

The government also intends to change the Labor codes to increase welfare benefits.

Also additionally free food grain supply to all migrants who are neither NFSA or State Card beneficiaries for next two months.

Here it will be spending Rs 35 bn within next two months, with government of India bearing the entire cost

Also technology driven system will enable migrant’s access to Public Distribution System by March 2021. This will be done by way of a one nation one card.

The government expects to benefit 67 crs beneficiaries in 23 states covering 83% of PDS population & will be covered by national portability by August, 2020.

Rs 15 bn Interest subvention for MUDRA – Shishu loans. The government here will provide interest subvention of 2% for prompt payees for a period of 12 months.

The current portfolio of MUDRA-Shishu loans is Rs 1.62 Lakh crore (Maximum loan amount of 50,000 Rs).

Government of India will provide Interest subvention of 2% for prompt payees for a period of 12 months.

Rs 50 bn Special Credit Facility for street vendors. Will be launched within a month.

Government, will launch a special scheme ,vithin a month to facilitate easy access to credit to street vendors with a initial working capital up to Rs. 10,000.

This initiative will support nearly 50 lakh street vendors & will provide liiquidity of Rs 5000 crores

The government also plans a affordable rental housing complexes for migrant workers/urban poor.

To implement this, the government plans to incentivise manufacturing units, industries, institutions, associations to develop Affordable Rental Housing Complexes (ARHC) on their private land and operate these assets

Employment generation through CAMPA (Compensatory Afforestation Management & Planning Authority) set up under Compensatory Afforestation Fund Act, 2016 funds announced worth Rs 60 bn

Here funds to be used by state govenments will be for

Afforestation and plantation works, including in urban areas

Artificial regeneration, assisted natural regeneration

Forestmanagement,soil &moisture conservation works

Forest protection, forest and wildlife related infrastructure development, wildlife protection and management

All these initiatves under CAMPA will create job opportunities in urban, semi-urban and rural areas.

Rs 300 bn additional emergency announced for working capital fund for farmers through NABARD

This initiative will benefit around 3 crore farmers and will meet post harvest Rabi and current Kharif requirements in May & June

Rs 700 bn boost to housing sector and middle income group through extension of Credit Linked Subsidy Scheme up to March 2021.

This scheme has benefitted 3.3 lakh middle class families so far & the government will extend the CLSS Scheme up to March 2021.

Also this will benefit around 2.5 lakhs middle income families during 2020-21 and will lead to Investment of over Rs. 70,000 crores in housing

This move by the government will create jobs and will stimulate demand for steel, cement, transport and other construction materials.

Our View –

Net net we believe that the second tranche of stimulus measures announced will help the migrant, small and medium farmers which will benefit both the social and agriculture sectors in the longer term

The key challenges in the near term will be the execution of these government spending initaitives to the final recipients.

Increased amout of credit to Nabard via banks will help Agri implements and Agro chemicals players like Mahindra, Escorts, PI Industries, Rallis, UPL, Dhanuka and fertilizer cos like RCF, Corromandal and Chambal.

Tranche 3 announced by FM

Measures announced by FM Nirmala Sitharaman

The FM announced the following measures in her press conference. Some of the key highlights are as follows –

Rs 30,000 crs additional Emergency Working Capital for farmers through NABARD

Government will extend additional re-finance support of Rs 30,000 crs over and above the Rs 90,000 crs already being provided by NABARD for meeting crop loan requirement ofRural Cooperative Banks and RRBs benefitting 3 crs farmers

Rs 2 lakh cr credit boost to 2.5 cr farmer s under Kisan Credit Card Scheme and will also include Fisherman and Animal Husbandry Farmers

Additionally Government has already taken the following action in last 2 montsh which include the following –

During lock down period Minimum Support Price (MSP) purchases of amount more than Rs 74,300 crs

PM KISAN fund Transfer of Rs 18,700 crs

PM Fasal Bima Yojana claim payment of Rs 6,400 crs

560 Lakh litre per day(LLPD) procured by cooperatives against daily sale of 360 LLPD.

Total 111 cr litres extra procured ensuring payment of Rs 4100 cr.

A new scheme to provide interest subvention @2% per annum to dairy cooperatives for 20-21.

Additional 2% p.ainterest subvention on prompt payment/interest servicing.

This scheme will unlock 5000 cr additional liquidity, benefitting 2 cr farmers.

Financing facility of Rs. 1,00,000 crore will be provided for funding Agriculture Infrastructure Projects at farm-gate & aggregation points (Primary Agricultural Cooperative Societies, Farmers Producer Organisations, Agriculture entrepreneurs, Start-ups, etc.)

Rs 10,000 crs scheme for Formalisation of Micro Food Enterprises to help 2 lakh MFEs

Rs 20,000 crs for Fishermen through Pradhan Mantri Matsya Sampada Yojana (PMMSY)

Rs 11,000 Cr for activities in Marine, Inland fisheries and Aquaculture

Rs 9000 crs for Infrastructure- Fishing Harbours, Coldchain, Markets etc

Employment to over 55 lakh persons; double exports to Rs 100,000 crs.

National Animal Disease Control Programme for Foot and Mouth Disease (FMD) and Brucellosis launched with total outlay of Rs 13343 crs

Animal Husbandry Infrastructure Development Fund – Rs. 15,000 crore

This aims to support private investment in Dairy Processing, value addition and cattle feed infrastructure

Promotion of Herbal Cultivation allocate Rs. 4000 crore

Beekeeping initiatives –Rs 500 crores

Operation Green will be extended from Tomatoes, Onion and Potatoes (TOP) to ALL fruits and vegetables (TOTAL). Rs 500 crores

Agriculture food stuffs including cereals, edible oils, oilseeds, pulses, onions and potato to be deregulated.

Our View –

Net net we believe that the third tranche of stimulus measures announced will help the Agriculture related sectors, small and medium farmers and the fishery and marine segments positively.

Increased funding will help Agri and Agro chemicals players like Mahindra, Escorts, PI Industries, Rallis, UPL, Dhanuka, and marine players like Avanti, Apex etc

Tranche 4 announced by FM

Incentive schemes for Promotion of New Champion Sectors will be launched in sectors such as Solar PV manufacturing; Advanced cell battery storage; etc

The government would make available Industrial Land/ Land Bank for promoting new investments and making information available on Industrial Information System (IIS) with GIS mapping.

It has already earmarked 3376 industrial parks/estates/SEZs in 5 lakh hectares mapped on Industrial Information System (IIS)

Also the government has libderalised the Commercial Mining in Coal Sector

Government will introduce competition, transparency and private sector participation in the Coal Sector through –

Revenue sharing mechanism instead of regime of fixed Rupee/tonne

Nearly 50 blocks to be offered immediately

Against earlier provision of auction of fully explored coal blocks, now even partially explored blocks to be auctioned.

The government will allow private sector participation in exploration.

Infrastructure development of Rs. 50,000 crs

For evacuation of enhanced CIL’s target of 1 billion tons coal production by 2023-24 plus coal production from private blocks.

This includes Rs 18,000 cr worth of investment in mechanized transfer of coal (conveyor belts) from mines to railway sidings.

Further concessions in commercial terms given to be given to CIL’s consumers (relief worth Rs 5000 cr offered)

500 mining blocks would be offered through an open and transparent auction process

Also the government will Introduce Joint Auction of Bauxite and Coal mineral blocks to enhance Aluminum Industry’s competitiveness

Further introduced rationalisation of stamp duty payable at the time of award of mining leases.

“Make in India” for Self-Reliance in Defence Production

Here the government will notify a list of weapons/platforms for ban on import with year wise timelines;

Also will involve indigenisation of imported spares

FDI limit in the defence manufacturing under automatic route will be raised from 49% to 74%

Time-bound defence procurement process and faster decision making will be ushered in by –

Setting up of a Project Management Unit (PMU) to support contract management;

Realistic setting of General Staff Qualitative Requirements (GSQRs) of weapons/platforms

Benefits to the Airline Sector

Reduction in Flying cost Rs. 1000 crores – Efficient Airspace Management for Civil Aviation

6 more airports identified for 2nd round. Bid process to commence immediately.

Additional Investment by private players in 12 airports in 1st and 2nd rounds expected around Rs. 13,000 crores

Tax regime for MRO ecosystem has been rationalized.

Aircraft component repairs and airframe maintenance to increase from Rs 800 crs to Rs 2000 crs in three years.

Major engine manufacturers in the world would set up engine repair facilities in India in the coming

For the Power Sector progressive reduction in cross subsidies allowed

Time bound grant of open access

Generation and transmission project developers to be selected competitively

Power Departments / Utilities in Union Territories will be privatised to better service to consumers and improvement in operational and financial efficiency in Distribution

Government will enhance the quantum of Viability Gap Funding upto 30% each of Total Project Cost as VGF by Centre and State/Statutory Bodies.

For other sectors, VGF existing support of 20 % each from GoI and States/Statutory Bodies shall continue

Total outlay is Rs. 8100 crores

Boosting private participation in Space activities

Government here will provide level playing field for private companies in satellites, launches and space-based services.

It will also provide predictable policy and regulatory environment to private players.

Private sector will be allowed to use ISRO facilities and other relevant assets to improve their capacities.

Future projects for planetary exploration, outer space travel etc to be open for private sector

Atomic Energy related Reforms

Government will helpm establish facilities in PPP mode to use irradiation technology for food preservation – to compliment agricultural reforms and assist farmers.

This will help to link India’s robust start-up ecosystem to nuclear sector – Technology Development cum Incubation Centres will be set up

Our View –

Net net we believe that the 4th tranche of stimulus measures announced will help the Coal, Space, Civil Aviation & Defence sectors in the longer term

The key challenges in the near term will be the execution of these government spending initaitives to these sectors and how quickly implementation happens across corporates

Increased investments in the above mentioned sectors like coal, space, civil aviation and Defence will help existing PSU and private Defence players like BEL, Larsen, Mahindras, Dynamatic Tech and increase competition for Coal India which is likely to see more competition ahead.

On the other space sector will also help existing PSU players like Midhani which is a large player in the ISRO proggramme.

However benefits given to the civil aviation players like Spicejet, Indigo are unlikely to see any immediate impact as these players are already under severe cashflow pressure following the virus outbreak and may see positive implications in the longer term only.

Tranche 5 announced by FM

Recent Corporate Law measures to boost measures for ease of doing business

Simplified Proforma for Incorporating Company Electronically Plus (SPICe+) introduced which extends 10 services of different Ministries and one State Government through this platform

Timely Action during COVID–19 to reduce compliance burden under various provisions of the Companies Act, 2013 as well as enable Companies conduct Board Meetings, EGMs & AGMs, Rights issue by leveraging the strengths of Digital India

Under IBC, 13,566 cases involving a total amount of Rs 5.01 lakh crs have been withdrawn before admission under provisions of IBC till 29th Feb 2020

Rs 40,000 crs increase in allocation for MGNREGS to provide employment boost

Increased investments in Public Health

Suspension of fresh initiation of insolvency proceedings up to one year depending upon the pandemic situation.

Direct listing of securities by Indian public companies in permissible foreign jurisdictions.

Private companies which list NCDs on stock exchanges not to be regarded as listed companies

Lower penalties for all defaults for Small Companies,One-person Companies, Producer Companies & StartUps.

Public Sector Enterprise Policy

All sectors are open to the private sector while public sector enterprises (PSEs) will play an important role in defined areas

The government will announce a new policy whereby list of strategic sectors requiring presence of PSEs in public interest will be notified

In strategic sectors,atleast one enterprise will remain in the public sector but private sector will also be allowed

In other sectors, PSEs will be privatized (timing to be based on feasibility etc.)

To minimize wasteful administrative costs, number of enterprises in strategic sectors will ordinarily be only one to four; others will be privatized/merged/brought under holding companies

Our View –

Net net we believe that the 5th tranche of stimulus measures announced will help the Infrastructure and employment generation, and also facilitate mergers of several PSUs across sectors where the government has stated that in any given strategic sector the government will not have more than 4 players.

This means there will be large scale mergers and buyouts in the PSU banks, metals, infrastructure sectors going ahead

The key challenges in the near term will be the execution of these initiatives mentioned here as the government has not given any confirned timeline here.

Disclaimer –
This document is meant for the recipient only for use as intended and not for circulation. This document should not be reproduced or copied or made available to others. The information contained herein is from the public domain or sources believed to be reliable. While reasonable care has been taken to ensure that information given is at the time believed to be fair and correct and opinions based thereupon are reasonable, due to the very nature of research it cannot be warranted or represented that it is accurate or complete and it should not be relied upon as such. Also above note is not a recommendation to Buy or SELL and is only a view based on facts and figures and we will be in no way responsible for any losses incurred by anyone who uses this information to either trade or invests securities mentioned herein.