- Government could announce payroll support for 110 million MSMEs workers and staff
- Towards payroll support, government may waive employers' PF contribution or reduce PF contribution for both; salary payment in two instalments
- FM Nirmala Sithraman met PM Narendra Modi on Thursday to finalise relief package
- RBI will also make announcements, sharing the burden of stimulus with the govt
Close on the heels of a Rs 1.7 lakh crore relief package for poor and needy, the Centre may now announce a fiscal stimulus for industry. The package could come in phases and target worst-affected sectors like automobile, construction and textiles. But given that stress on MSMEs, a helping hand in the form of payroll support for workers is likely to precede the bigger stimulus. Towards payroll support, government may waive employers' PF contribution or reduce PF contribution for both; salary payment in two instalments
With April salary date approaching for nearly 110 million MSMEs workers and staff, the government is keen that salaries and wages are paid on time.
Wage support can be in the form of government sharing part of the provident fund (PF) contribution of employers or employees or both. It may also be suspension of mandatory PF contribution and allowing MSMEs to pay wages and salaries in instalments. While such measures are under consideration, firms in the MSME sector want the government to bear the salary burden for worker category for the entire lockdown period.
"A comprehensive relief package has been in works for nearly 20 days now. The government is almost ready with it and could announce in phases. The immediate priority is to help workers in the informal sector and MSMEs," said an official.
Finance Minister Nirmala Sithraman met Prime Minister Narendra Modi on Thursday to finalise the emergency relief package for the industry, workers and households.The ruling BJP's National Spokesperson (Economic Affairs) Gopal Krishna Agarwal feels there is no "pressing emergency" for the fiscal stimulus, but MSMEs need immediate support.
"They (MSMEs) need hand-holding. There is no pressing emergency for a stimulus package immediately," Agarwal said differentiating financial support from fiscal stimulus.He noted that travel, tourism, hospitality and construction were the worst affected sectors and would need stimulus in due course of time. He argued that a fiscal stimulus for travel sector would not work till it gets off the ground.
Adopting a gradual exit strategy from the lockdown, the Centre has allowed select industries outside coronavirus hotspots to open from April 20 provided they strictly adhere to social distancing norms and personal hygiene.
Apart from e-commerce players and IT companies, a Home Ministry order has permitted factories operating from special economic zones (SEZs) and export oriented units (EOUs) to open. Further relaxation has been provided to logistics and agriculture sector. The move is indicative of government plan to allow more economic activities from May 3.
Coronavirus outbreak has dealt a body blow to the economy and disrupted entire supply chain. Investment bank Barclays has estimated that India's loss of economic activity could be as high as $234 billion (Rs 18 lakh crore) in the 40-day lockdown period.
Other research and rating agencies have slashed their FY21 GDP forecast for the economy with projections varying from 0 to sub-2 per cent. A section of policy-makers has been of the view that India cannot afford to go for much longer lockdown and nor is it necessary given the relatively low count of positive cases compared to other countries like US, Italy, Spain and Germany.
A senior bureaucrat argued that countries in South Asia geographical region are not affected much and cited the cases of Pakistan and Bangladesh. He made a strong case for kick-starting the economy.
Among measures to support the business and economy hammered by the virus, the centre's fiscal stimulus is expected to include payroll support for workers in the informal sector, liquidity support to MSMEs, recast of bank loans for large corporates and release of unpaid dues to businesses.
Officials have indicated that the government would provide support to industry more in terms of deferment of statutory payments, relaxed terms for credit, restructuring of existing debt and easier procedures to raise capital from overseas markets. Since government finances itself has been under tremendous pressure due to revenue shortfall, a sizeable burden to support the industry could be on RBI.
The RBI on March 27 cut its key policy rate by 75 basis points to 4.40 per cent making loan cheaper for corporates, consumers and homebuyers. It also provided three months moratorium on all term loans thus bringing much-needed relief for the borrowers.
While RBI has taken a slew of measures to ensure liquidity in the market and credit supply, the industry is facing cash crunch due to payments getting stuck across supply chain. The MSMEs are worst affected as their payments remain due from PSUs, government agencies and large corporates.
As Centre readies the stimulus package, it is set to provide for clearing such dues quickly. This alone could ease the problem considerably for a large number of MSMEs.As the lockdown has now been extended by another 19 days to May 3 the industry has been mounting pressure on the government to come out with emergency relief measures sooner than later.
"I do feel that the stimulus package for the industry is required very strongly. I think government should do at least 5 per cent of GDP as a first phase, the size of Rs 8-9 lakh crore, to set aside for the stimulus," DCM Shriram Chairman & Senior Managing Director Ajay S Shriram told BusinessToday.in.
The size of fiscal stimulus announced by various countries vary in the range of 9% to 26% of their gross domestic products (GDPs). Government think-tank Niti Aayog is learnt to have deliberated on a set of relief measures that could be part of the proposed stimulus package. It has suggested measures to help workers, households, MSMEs and large corporates. They include direct benefit transfer (DBT) for needy, payroll support for informal sector and easier credit for MSMEs.