While the government's coronavirus stimulus package is still a work in progress, industry body Confederation of Indian Industry (CII) has stated that India needs a Rs 15-lakh crore stimulus package immediately to support poor and micro, small and medium enterprises (MSMEs).
"With economic activities being restricted for over 50 days now, the negative impact on the economy is expected to be even more significant than what we had earlier anticipated. This needs to be offset by a large fiscal stimulus so that jobs and livelihoods are protected. CII recommends the government to announce an immediate stimulus package of Rs 15 lakh crore, which translates into 7.5 per cent of GDP," said Vikram Kirloskar, President, Confederation of Indian Industry.
According to CII, the components of the stimulus package should include cash transfers amounting to Rs 2 lakh crore to JAM account holders, in addition to Rs 1.7 lakh stimulus already announced. The migrant labourers should be eligible for this support, the industry body said.
Further, in order to provide enterprises the immediate support to pay salaries to its workers and avoid any job losses, CII has suggested a provision of Rs 2 lakh crore for additional working capital limits. Banks should provide it at an interest rate of 4-5 per cent, equivalent to April-June wage bill of the borrowers, backed by a government guarantee, CII added.
In order to support the estimated 63 million MSMEs, CII has suggested a credit protection scheme whereby 60-70 per cent of the loan should be guaranteed by the government to reduce the risk to the lender. In addition, it has called for a fund or SPV with a corpus of Rs 1.4-1.6 lakh crore, which should subscribe to NCDs/bonds of corporates rated A and above.
The industry body wants the fund to be seeded by the government contributing a corpus of Rs 10,000-20,000 crore, with further investments from banks and financial institutions. "This will provide adequate liquidity to industry, particularly the stressed sectors such as aviation, tourism and hospitality," CII noted.
In order to create a significant multiplier impact on boosting demand in rest of the sectors and enhancing long-term productivity, CII has also suggested Rs 4 crore allocation towards funding public infrastructure. The work should be initiated with the involvement of state governments, so that implementation bottlenecks can be overcome, it said.
Further, it has suggested an allocation of Rs 2 lakh crore to be earmarked for bailing out state-run electricity distribution companies that have been accumulating losses and burdening the state governments. Besides, to protect the financial sector for meeting the credit needs of the real estate sector and absorbing shocks from potential insolvencies, an allocation of Rs 2 lakh crore for bank recapitalisation has been sought.
In order to finance the broad elements of the stimulus package, CII has suggested Rs 4 lakh crore support from the subscription of government paper by the RBI. Another Rs 2 lakh crore can be borrowed by the government from the secondary market, so that bond yields remain moderate, the association said. The balance funds for the stimulus can be raised through substantial reduction in expenditure, they said.
"Clearly, time is running out for a fiscal stimulus package to rescue the economy. Delayed fiscal relief for enterprises reeling under the lockdown will make it harder for them to recover," said Chandrajit Banerjee, Director General, CII.
"A key fall out of this economic slowdown would be the human cost in terms of loss of jobs and livelihoods, which need urgent government intervention," he added.