Costly delay

Hesitation in announcing a financial package is inexplicable

Union Finance Minister Nirmala Sitharaman on Tuesday announced a series of measures that essentially provide or extend a grace period for several payments and regulations. The idea is to ensure that there is no additional pressure on taxpayers and companies over and above the lockdown associated with the fight against coronavirus. By and large, Ms Sitharaman announced procedural moves such as extending the income-tax returns filing date, linking the permanent account number, or PAN, to Aadhaar, etc. There was a reduction in the rate of interest to be charged for delays in the deposit of the tax. Similar measures were put into place for goods and services tax (GST), with the last day also extended to June 30 and with smaller and medium-sized establishments being exempted from interest and penalty. This would provide some relief to individuals and businesses. The impact of the nationwide lockdown on companies will be severe, particularly on those that run on low margins and with minimal working capital. It is important to ensure that they have no additional stress caused by regulatory compliance requirements. It is also important to ensure that this period does not see any large spurt in bankruptcies of companies that are otherwise going concerns. Thus the government has also declared that the threshold to trigger the provisions of the Insolvency and Bankruptcy Code has been increased a hundredfold to Rs 1 crore from Rs 1 lakh. This will help micro, small and medium enterprises (MSMEs), which are expected to be among the worst hit.

But it is hard to understand why Ms Sitharaman could not announce a full financial package on Tuesday itself. Scores of countries have already done so: The European Central Bank has moved to support bank lending in the euro zone, including by loosening capital requirements and opening up its own long-term lending to banks. Various individual European governments have also stepped in. German Chancellor Angela Merkel has authorised the country’s main state-controlled bank to lend more than $600 billion to companies. The UK has rolled out a $384-billion rescue package; South Korea has also announced a big stimulus package. So no one knows what has held the Indian government and the Reserve Bank of India back, given the scale of the economic damage that needs to be tackled.

The government’s hesitation makes no sense as a large fiscal slippage is anyway unavoidable at this stage. Other countries have announced outright tax holidays for some sectors, as well as focused on lending to those sectors and segments most likely to be affected by the shutdown. This must also be on the agenda in terms of regulatory responses — quite aside from the direct transfers and support that will be part of the overall economic package. The measures announced on Tuesday were mere low-hanging fruits related to “statutory and regulatory compliance matters”. That’s just not enough. It is also inexplicable that the government is yet to constitute the COVID-19 economic task force even five days after the prime minister announced its formation. The government must not lose any more time in constructing a big economic package.