Government announced Rs 11.03 lakh crore of measures this week.
Over the last five days, the FM announced a slew of measures spanning liquidity boosts to NBFCs, MSMEs, relief for realtors, migrant labourers, agriculture, mining and defence sectors, to opening up all sectors for private entities among others.
This is a part of the Prime Minister Narendra Modi’s Rs 20 lakh crore “Atmanirbhar Bharat Abhiyan” to help businesses and individuals tide over the Covid-19 crisis.
Government announced Rs 11.03 lakh crore of measures this week, adding to the earlier measures announced by it and the Reserve Bank of India (RBI). Stimulus from earlier measures was Rs 1.92 lakh crore, while the actual size of RBI’s measures was Rs 8 lakh crore.
“The entire package has been quite disappointing. They are trying to avoid a rating downgrade. It is not a time to do the balancing act,” said Abhimanyu Sofat, Vice president, Research, IIFL Securities
According to Sofat, the government could have moved to reduce GST or personal income tax.
“Unless there is more money in the hands, how will they spend — be it capital expenditure or consumption expenditure,” he questioned.
Others seem to agree.
“The package has to be seen in the context of the fiscal space or rather the lack of it, and worries about a possible rating action,” said Ajay Bodke, CEO-PMS, Prabhudas Lilladher.
Bodke pointed that any adverse downgrade to junk status would have a cascading impact on various parameters such as cost of borrowing, currency woes, the FII (foreign institutional investment) flows, in particular the debt flows .
“One has to see it in that context,” he said.
“The market was expecting a targeted sectoral relief package that hasn’t come through. To that extent, the market would have liked more of those,” he added.
Sofat pointed that some of the announcements such as coal privatization and aviation measures were just a step ahead to earlier announced measures.
Not all was lost though. In the fifth tranche of announcements this week, the budget allocation towards MGNREGS at Rs 61,500 crore for FY21 has been increased by an additional Rs 40,000 crore. This is seen helping generate 300 crore persons days in total.
To further enhance ease of doing business, minimum threshold to initiate insolvency proceedings was raised to Rs 1 crore from Rs 1 lakh earlier. This will largely insulate medium, small and micro enterprises (MSMEs). The FM said that a special insolvency resolution framework for MSMEs under Section 240A of the Code will be notified soon.
Sitharaman also announced suspension of fresh initiation of insolvency proceedings of up to one year, depending upon the pandemic situation.
“Increasing MGNREGS amount was a good move, especially with people going back to hometowns. However, they have delayed fresh IBC proceedings by one year, but who will bear the brunt of it? Will the government compensate the lender? It needs more clarity,” said Sofat.
Analysts agreed thatthe rules required further clarification.
“The halt on fresh initiation of insolvency proceedings will help corporates who have been facing severe Covid stress – expect banks to use the restructuring route a lot more over the next year or so and accordingly providing more teeth to consummate restructuring pursuant to the 7 June circular will help,” said Sanjeev Krishan, Partner & Leader, Deals at PwC India
The words used are “fresh initiation”, and clarification would be required on whether existing cases which have been referred to NCLT can be admitted, i.e. does fresh initiation mean referrence or admittance,” he added.
FM announced that all sectors will be opened to the private sector even as PSEs will continue to play an important role in defined areas.
With this in mind, the government will announce a new policy to list strategic sectors requiring presence of PSEs (public sector enterprises).
In strategic sectors, at least one enterprise will remain in the public sector, meaning private sectors will also be allowed to participate in those sectors. In other sectors, PSEs will be privatized, she said.
“The 3 highlights in the last tranche of FM’s announcements are hiking the MGNREGS outlay by additional Rs 40,000 crore, raising the state’s borrowing limit to 5 per cent from 3 per cent though with conditionalities and a major privatisation push,” said VK Vijayakumar- Chief Investment Strategist- Geojit Financial Services
“More private sector entry can be expected in strategic areas. Major privatisation can be expected in non-strategic areas. This is eminently desirable and very positive from the market perspective,” he added.