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The fresh stimulus package should help boost sentiment

Bs_logoNirmala Sitharaman
FM Nirmala Sitharaman said 24 per cent contribution of provident fund will be made by the government if the establishment has up to 1000 employees.
Business Standard Editorial Comment New Delhi
3 min read Last Updated : Nov 13 2020 | 12:17 AM IST
Union Finance Minister Nirmala Sitharaman’s announcement of a fresh set of measures to support the pandemic-hit Indian economy has come at an important juncture because some of the high-frequency indicators are showing signs of economic recovery, and analysts are revising their forecasts. For instance, according to a Reserve Bank of India study, if the upturn is sustained, the Indian economy can break out of contraction in the third quarter itself — ahead by a quarter compared to the October forecast of the monetary policy committee. Moody’s has also revised its economic contraction forecast for the full year. Apart from festival demand, the decline in the number of new Covid cases has boosted sentiment to some extent, though Delhi remains an area of concern. But the fact is the Indian economy would still contract significantly in the current fiscal year and needs policy support. It’s in this context that the Atmanirbhar Bharat 3.0 package and Wednesday’s production-linked incentive scheme for 10 important sectors, which would help boost manufacturing output, were required.

The government has done well to provide a status check on some of the earlier announcements. For instance, 28 states and Union Territories have been brought under the portable ration card scheme. Over Rs 1 trillion worth of liquidity has been provided to power distribution companies. Among the new measures, the government would provide support for employment creation in the formal sector below a threshold of wages. It has extended the credit guarantee scheme to support firms in the stressed sectors identified by the Kamath Committee, subject to certain conditions. This would help firms in these sectors, which have been affected because of Covid-related difficulties. The tenor under this scheme would be five years, which includes a moratorium of one year on principal repayment.

The other significant interventions were in the real estate sector. The government will provide an additional sum of Rs 18,000 crore for the Pradhan Mantri Awas Yojana in urban areas. This would help improve activity in the sector and, according to government estimates, create about 7.8 million jobs. Further, the government will amend the Income Tax Act to provide relief in cases where transactions happen below circle rates. The differential would be increased to 20 per cent from 10 per cent. This is significant because the economic slowdown has led to a sharp correction in real estate prices, which are not reflected by the circle rates, decided by local governments. This is expected to clear part of the unsold inventories of housing stocks in the country. Among other announcements, the government will infuse equity into the National Investment and Infrastructure Fund, which will help it raise funds and finance infrastructure projects over the medium term.

Further, the government will provide additional Rs 10,000 crore for the PM Garib Kalyan Rozgar Yojana, which can be used to give employment under the Mahatma Gandhi National Rural Employment Guarantee Act. The rural job scheme has worked well this year and provided the much-needed support to a large number of migrant workers returning home during the nationwide lockdown. The government had earlier increased the allocation by Rs 40,000 crore for the scheme. Overall, the government has done well to find space to support economic activity under the given fiscal constraints. To be fair, a large increase in expenditure or tax cuts, as suggested by some commentators, would have been a risky proposition for India.

 

Topics :Nirmala SitharamanCoronavirusFiscal stimulusIndian Economy

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