New Covid package to raise fiscal deficit by 0.6%
Health sector has been given further impetus, by way of guarantee cover of Rs 50,000 crore for expansion and new projects related to health in cities other than eight metropolitan cities
image for illustrative purpose
Mumbai: The announcement pertaining to economic relief for pandemic by the government on Monday broadly emphasises four sectors – health, tourism, MFIs and agriculture. The other measures announced fine tune the scope of already existing arrangement.
Following the accommodation by RBI, health sector has been given further impetus, by way of guarantee cover of Rs 50,000 crore (50 per cent for expansion & 75 per cent for new projects) for expansion and new projects related to health/infrastructure in cities other than eight metropolitan cities, say SBI's economists.
For Aspirational Districts (124 in number) guarantee cover has been kept uniform at 75 per cent. Maximum eligible loan amount will be Rs100 crore for a duration of three years. A similar guarantee scheme for an amount of Rs 60,000 crore for other sectors has also been announced. Assuming equal distribution of the new announcement of Rs 1.10 lakh crore, with 50 per cent and 75 per cent guarantee cover and a risk weight of 100 per cent, Banks may have a capital relief of around Rs 7,500 crore which can further generate credit of around Rs 70,000 crore.
To further the flow of credit to weaker section of the society, guarantee will be provided to SCBs for loans to new or existing NBFC-MFIs or MFIs for on lending upto Rs 1.25 lakh to approximately 25 lakh small borrowers. Interest rate on such loans from banks will be capped at MCLR plus 2 per cent.
Agriculture, the only sector that has cushioned the shock for Covid-19 has been also given vital support by way of better seeds and fertilizer subsidy announced earlier. Seed varieties tolerant to diseases, insects' pests, drought, salinity, and flooding, early maturing and, amenable to mechanical harvesting will be made available. Targeted crops include rice, peas, millet, maize, soybean, quinoa, buckwheat, winged bean, pigeon pea & sorghum. Furthermore, impetus has been given to agriculture sector in the North East by reviving North Eastern Regional Agricultural Marketing Corporation with a package of Rs 77.45 crore.
"The RBI had earlier announced special window for contact intensive sectors such as tourism. Monday's announcements complement the RBI announcement and propose working capital/personal loans to people in tourism sector to discharge liabilities and restart businesses impacted due to Covid-19. Loans will be provided with 100 per cent guarantee and will cover 10,700 regional level tourist guides recognised by Ministry of Tourism and tourist guides recognised by the State governments. The outlay is a part of the total Rs 1.10 lakh crore loan guarantee scheme. Further 5 lakh foreign tourists visas will be issued free of charge," said Soumya Kanti Ghosh, SBI group's chief economic advisor.
In terms of existing arrangement, the limit of admissible guarantee and loan amount under ECLGS is increased above existing level of 20 per cent of outstanding on each loan and overall cap will be raised to Rs4.5 lakh crore. Atmanirbhar Bharat Rozgar Yojana has now been extended till March 31, 2022. In an attempt to boost exports, additional corpus of Rs33,000 crore will be provided to NEIA over 5 years to support project exports and the equity base of ECGC will be expanded to Rs88,000 crore over 5 years. The internal approval mechanism of PPP Projects and Asset Monetisation will be streamlined for speedy approvals, he added.
The fiscal impact of announcements made on Monday and earlier is not linear as substantial portion of the package is contingent liabilities. Ignoring these, the immediate impact will be slightly more than Rs1.23 lakh crore which will be around 0.6 per cent of the GDP.
