The credit push | Business Standard Editorials

Clipped from: https://www.business-standard.com/article/opinion/the-credit-push-121062801488_1.html

Relief package is well-intentioned but won’t move the needle much

Union Finance Minister Nirmala Sitharaman on Monday announced another set of measures to provide relief and enable various sectors to deal with the disruption created by the pandemic. Ms Sitharaman also used the opportunity to highlight a number of other government initiatives. The number of Covid cases has come down significantly in large parts of the country, which has allowed state governments to reduce restrictions on public mobility. Economic activity has improved as a result, but uncertainty for businesses remains. A renewed increase in infection can again disrupt economic recovery. In this context, the latest announcements are aimed at improving the availability of credit for a variety of sectors and businesses.

Among major announcements, the government will extend Rs 1.1 trillion worth of loan guarantees for Covid-affected sectors. In the health sector, it can be used to build health infrastructure outside the eight metro cities. The interest rate for such loans has also been capped at 7.95 per cent. A lower interest rate should encourage hospitals and other service providers to expand capacity and the guarantee is expected to incentivise lenders to lend to such borrowers. Additionally, in the health sector, the government will spend Rs 23,220 crore for paediatric care in the current fiscal year. This is a welcome step and will help augment capacity to deal with paediatric problems. The government has also increased the overall limit for the Emergency Credit Line Guarantee Scheme, announced last year, by Rs 1.5 trillion. About Rs 2.7 trillion worth of credit has been disbursed under the scheme so far. This will help small businesses raise working capital to restart or expand operations. The government will also provide guarantees for lending by microfinance institutions up to Rs 1.25 lakh to about 2.5 million borrowers. This loan will be available at a lower interest rate and should help small businesses and entrepreneurs in restarting business activity. The government will also extend guarantees for lending to stakeholders and individuals involved in the tourism business. Tourism is one of the worst-affected sectors. However, it’s not clear if credit will help the tourism sector at this stage. The sector might have to wait for some more time to witness any significant revival.

At a broader level, the extension of credit, guarantees, and lower interest rates will help businesses in these difficult circumstances, but those expecting a big fiscal push to revive demand will be disappointed. The announcements are well-intentioned but are unlikely to change much on the ground. It is clear that, like last year, the government’s focus is on providing relief and not necessarily boosting demand through direct government spending, which is also the right thing to do at this stage because the pandemic is not over, and there will be recurring calls on the treasury at a time when revenue mobilisation is expected to remain muted. Besides Covid-related relief, the finance minister also talked about policy steps such as the new process for public-private partnership projects and asset monetisation, extending the production-linked incentive scheme for electronics manufacturing, expanding broadband, and a new scheme for the power sector. Most of these initiatives will work over a period of time and will not have any immediate impact. A durable economic revival thus depends on conclusively containing the pandemic through faster vaccination.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s