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India: Govt unveils relief package worth INR 6.3tn to support economic recovery

  • Outlay of emergency credit guarantee scheme for small businesses increased by INR 1.5tn to INR 4.5tn

  • New loan guarantee scheme worth INR 1.1tn for COVID-impacted sectors, including INR 500bn for health infrastructure

  • Additional funds of INR 232.2bn for strengthening public health infrastructure will be allocated in FY22

India: Govt unveils relief package worth INR 6.3tn to support economic recovery
EmergingMarketWatch
29 June 2021

FinMin Nirmala Sitharaman on Monday announced series of measures aimed "to prepare the health systems for emergency response and provide impetus for growth and employment". A total of seventeen measures amounting to INR 6.3tn were unveiled, including two measures announced earlier – the additional subsidy for fertilizers, and extension of free food grains under Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) from May to November 2021. The measures could be grouped together into three broad categories:

I. Economic Relief from Pandemic 

Eight out of 17 schemes announced were directed at providing economic relief to people and businesses affected by the COVID-19 pandemic, with a special focus on health and reviving travel, tourism sectors. They include:

Expansion of Emergency Credit Line Guarantee Scheme

The government expanded the size of its emergency credit scheme for small and medium enterprises to INR 4.5tn from INR 3tn earlier. The ECLGS, which was launched in May 2020 under the government's 'Atmanirbar' (or self-sufficiency) package, aims to provide 100% guaranteed coverage to the banks and non-bank lenders to enable them to extend emergency credit to small businesses hit by the pandemic. So far, up to INR 2.7tn credit has been disbursed under the scheme to 11mn units, the FinMin noted.

Loan guarantee scheme for COVID-impacted sectors

The FinMin announced an INR 1.1tn loan guarantee scheme for COVID-impacted sectors. Of this INR 500bn is earmarked for scaling up health infrastructure in cities beyond the top eight metros, with the interest rate capped at 7.95%. A guarantee cover of 50% will be provided for expansion of facilities and 75% for new facilities. The guarantee will be applicable for three years and the maximum amount of loan per facility is set at INR 1bn. The remaining INR 600bn is set aside for other sectors, with an interest rate cap of 8.25%. Aspects of guarantee support available to other sectors will be chalked out at a later stage, Sitharaman said.

Relief for micro borrowers

The government will provide INR 75bn in guarantee to banks for lending to microfinance institutions (MFIs). All individual borrowers of MFIs, including those overdue by up to 89 days, will be eligible to borrow up to INR 125,000. Loan rate will be capped at marginal cost lending rate of banks, plus 2%. The maximum loans tenure will be three years and the scheme is applicable till March 31, 2022.

Loans for tourism sector

The government will provide 100% guarantee on capital and personal loans to the tourism sector. Sitharaman said that this scheme will cover 10,700 regional level tourist guides and 904 stakeholders in the travel sector. Travel agencies can get up to INR 1mn loans while licensed tourist guides can avail loans up to INR 0.1mn under the scheme.

Free one-month tourist visa to 0.5mn visitors

Moreover, the government will waive off visa fees for the first 0.5mn tourists in an attempt to aid the country's tourism sector. The scheme will be applicable till March 31, 2022 or till 0.5mn visas have been issued. The scheme will start when borders reopen and visas start being issued once again. The FinMin said that this measure is likely to cost the government around INR 1bn.

Extension of Atmanirbhar Bharat Rozgar Yojana

The Atmanirbhar Bharat Rozgar Yojana, a scheme to incentivise job creation, will be extended to March 31, 2022 from June 30, 2021. Under the scheme, the government provides subsidy for two years for new employees that draw monthly wages less than INR 15,000. Sitharaman said that benefits worth INR 9bn have been given to 2.1mn beneficiaries till June 18.

II. Strengthening Public Health

Allocation of additional funds for public health

The government will allocate INR 232.2bn additional funds for strengthening public health infrastructure and human resources. The funds have been earmarked to be spent in FY22, the FinMin said. Apart from pediatric care, which will be the focus, the funds will also be used for short-term human resource augmentation through medical students, increasing ICU beds, oxygen supply and ensuring aduequate availability of medicines.

III. Impetus for Growth and Employment

  • The government will infuse nearly INR 800mn to revive the North Eastern Regional Agriculture Marketing Corporation.

  • The government will provide an additional INR 330bn to the National Export Insurance Account over five years. The funds will be to provide cover to buyers' credit given by the EXIM bank, and for cover to less creditworthy borrowers. It will also be to support project exporters.

  • The government will infuse equity of INR 880bn in Export Credit Guarantee Corporation (ECGC) over the next five years. The ECGC promotes exports by providing credit insurance services. Its products support a third of India's merchandise exports.

  • An additional INR 190.4bn will be spent for BharatNet that aims to expand broadband connectivity to all inhabited villages. Thus, total outlay under BharatNet will be enhanced to INR 611.1bn, with about INR 420.1bn already been approved in 2017.

  • The government will extend the performance-linked incentive (PLI) scheme for large scale electronic manufacturing by a year to FY 2025-26. The scheme, which was launched in the previous fiscal year for five years, provides incentives of 4-6% on incremental sales of goods under targeted segments that are manufactured in India.