Stimulus 4.0: FM stimulus package, its impact, analysis & more

Stimulus 4.0: FM stimulus package, its impact, analysis & more

Last updated: 30 Jun, 2021 | 02:11 pm

Stimulus 4.0: FM stimulus package, its impact, analysis & more

The government has announced a stimulus package worth Rs 6.29 lakh crore in a bid to provide relief to the struggling industries due to the second wave of the Covid-19 pandemic. The table below shows how much is being allocated to each of the sectors under the government’s latest scheme. 

We have prepared a short note on each of these measures, and how they are expected to impact the economy. 

Stimulus 4.0 impact

Here is everything you need to know about the announcement made by the finance minister:

Loan guarantee for sectors hit with COVID: Sectors like the hotel industry, tourism, aviation, and retail are some of the worst-hit sectors because of the pandemic. The FM announced a special Rs 60,000 crore loan guarantee package for these sectors. The interest rate is capped at 8.25 percent per annum. Overall, the government has allocated Rs 1.1 lakh crore for these affected segments.

Emergency credit line guarantee: The emergency credit line guarantee is not a new package, as it is already part of the Atma Nirbhar (self-sufficiency) scheme. However, this allocation has been increased by another Rs 1.5 lakh crore to include sectors that are impacted by the pandemic. This will provide bridge credit lines with guarantees to ensure easy credit for pandemic-stressed sectors. 

Additional Subsidy for DAP & P&K fertilizers: Additional amount of Rs 14,775 crore to be provided for Di-Ammonium Phosphate fertilizers to help the agriculture sector.  This includes Rs.9,125 crore additional subsidy for DAP and Rs.5,650 crore additional subsidy for NPK based complex fertilizer.

Great news for tourism-related businesses: Tourism has been hit directly and indirectly because of the pandemic as there are travel restrictions in most parts of the country. Through this package, the government plans to support over 11,000 tourist guides and small tour operators by offering them personal loans or working capital loans. All the loans will be processed with zero collateral and zero processing charges. To boost the tourism demand, the government will provide free tourist visas to 5 lakh tourists up to March 2022. The total outlay has been budgeted as Rs 100 crore. 

Boost for the public healthcare allocation: The FM has announced Rs 15,000 crore in the last budget for short-term emergency preparedness with an emphasis on pediatric care. Now the FM has announced additional Rs 23,220 crore for funding the short-term HR augmentation through medical instruments and nursing students. The fund will also be used to increase ICU beds, medical equipment, oxygen availability, diagnostics, testing, genome sequencing, antigen testing, etc.

Export insurance: The FM announced additional corpus to the National Export Insurance Account (NEIA) to empower the underwriting of an additional Rs 33,000 crore of project exports.

Extending jobs schemes: The Atma Nirbhar Bharat Rozgar Scheme was to expire by June end. The FM has extended it by another 9 months. Through this scheme, the government subsidizes employees in tough times by contributing to the EPF accounts of employees. To boost agriculture, the FM announced Rs 14,775 crore of additional subsidy for DAP as well as potassic and phosphatic fertilizers. 

Broadband and power for every village: The government has announced a Rs 3,03,000 crore outlay for a result-linked power distribution scheme of financial assistance to DISCOMS. Out of this outlay, a sum of Rs 97,631 crore will be the share of the central government. Additionally, the government has also made an allocation of Rs 19,041 cr for the Bharat Net program to provide high quality broadband connectivity to all inhabited villages in India.

INDmoney Analysis

While the announcements come as a welcome relief to certain sectors impacted by the pandemic, they come at the cost of increasing the fiscal deficit even further. The Indian government has a fiscal deficit budgeted at 6.8% for FY22. According to estimates, the latest credit push for the pandemic-hit sectors and other relief supports will have an additional 60 bps impact on the fiscal deficit, and can offer an additional liquidity window of Rs 70,000 crore to banks. The sectors also may not see any immediate impact as most of the fiscal support is in the form of loan guarantees, and not direct stimulus.  

India’s relief packages (including Stimulus 1, 2 and 3) announced earlier have differed significantly from other economies which offered huge financial aid to households, businesses and people who lost jobs. The only direct relief has come in the form of free food grain distribution, while all other measures have been heavily focused on low-cost lending. From the market point of view and businesses, the stimulus has come at the right time and will be a feel-good factor to the market.