New Delhi: The COVID-19 pandemic has severely crip pled our economy. The lockdown which was necessit ated to arrest the spread of the contagion has come at a hu ge economic cost. By the time the third phase of t he lockdown ends, we would have lost almost two months of output. An immediate substantive stimulus is required from the Government in the form of support to the poor and support to industry especial ly the MSMEs.
“With economic activities being restric ted for over 50 days now, the negative impact on the e conomy is expected to be even more significant th an what we had earlier anticipated. This nee ds to be offset by a large fiscal stimulus so that jobs and li velihoods are protected. CII recommends the gover nment to announce an immediate stimul us package of at Rs 15 lakh crore, which translates into 7.5% of GDP “, said Mr Vikram Kirloskar, Pr esident, Confederation of Indian Ind ustry.
The broad elements of the stimulus inc lude cash transfers amounting to Rs 2 lakh cro re to JAM account holders, in addition to the Rs 1.7 lakh stimulus already announced. “A key fall ou t of this economic slowdown would be the human cost in terms of loss of jobs and livelihoods, wh ich need urgent government intervention”, said Mr Chandrajit Banerjee, Director General, CII. It should be ensured t hat the migrant labourers are kept within th e purview of the proposed cash transfers, Mr Banerjee a dded.
Further, in order to provide enterprises the immediate su pport to pay salaries to its workers and avoid any job losses, CII has suggested a provision of Rs 2 lakh crore for a dditional working capital limits to be prov ided by banks, equivalent to April-June wage bill of the borrowers, backed by a Government guaran tee, at 4-5% interest.
To support the estimated 63 million MSMEs wh ich have been battered by the pandemic, CII has sugg ested a credit protection scheme for MSMEs whereby 6 0-70% of the loan should be guaranteed by the govern ment, i.e. if the borrower defaults, government shou ld repay the bank upto the amount it has guarantee d, so the risk to the lender is limited. This will encourage t he banks to lend to the ailing sector so that their working capital needs are met.
In addition, CII has suggested the cre ation of a fund or SPV with a corpus of Rs 1.4-1.6 lakh cr ore which will subscribe to NCDs/Bonds of corp orates rated A and above. The fund can be seeded by the Go vernment contributing a corpus of Rs 10,0 00-20,000 crore, with further investments fr om banks and financial institutions. This will pro vide adequate liquidity to industry, p articularly the stressed sectors such as avia tion, tourism and hospitality.
In order to create a significant multiplier impact on boosting demand in rest of the sectors and enh ancing long-term productivity, funding publ ic infrastructure has been found to be a potent
option. In this regard, we suggest an allocation of Rs 4 l akh crore be made on a public works programme that will cr eate job opportunities. The work should be ini tiated with the involvement of state governments, s o that implementation bottlenecks can be overcome. S pecifically, the spending can begin with the completion of projects that have alr eady begun, such as roads which are stalled af ter 80% of the job is complete.
CII has also suggested an allocation of Rs 2 lakh crore to be earm arked for bailing out state-run electricity dis tribution companies that have been accumulat ing losses and burdening the state- excheq uer. Further, to protect our financial sector for meeti ng the credit needs of the real sector, as well as abs orb some shocks from potential insolvencies in t he real sector, an allocation of Rs 2 lakh crore for bank re capitalization is required. This will h elp public sector banks manage any surge in the ir NPAs.
In order to finance the broad elements of the stimulus packa ge laid out above, we suggest Rs 4 lakh crore support from t he subscription of government paper by the RBI, given the fact that inflationary pressures remain muted in view of depressed demand conditions. A lower amount of Rs 2 lakh crore can be borrowed by the Government from the secondary market, so that bond yields remain moderate. Fu rther, substantial reduction in expenditure of around Rs 4 lakh crores is possible by reducing s ome of the discretionary expenditure such as centr ally sponsored schemes. These are some of th e avenues that would finance the package.
“Clearly, time is running out for a fiscal stimul us package to rescue the economy. Delayed f iscal relief for enterprises reeling under the lockd own will make it harder for them to recover”, Mr B anerjee concluded.