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Debunking the Indian Economic package for COVID-19 : Atmanirbhar Bharat Abhiyan

"Atmanirbhar Bharat (Self Reliance India)", "Vocal for local", "Made in India", these are some few phrases which are trending on the news and various other social platforms from past few days. People were debating over the steps taken by the government to stimulate the ill-struck economy of India due to the COVID-19 pandemic. On 12th May 2020, we all got excited when our Prime minister announces a whopping economic package of Rs. 20 lakh crores. It was around 10% of our GDP. From then, day after day, our Finance Minister is announcing loads of measures to match the amount of 20 lakh crores. From adding Rs. 18,000 crore tax refunds in this package to providing partial credit guarantees for shadow bank loans, it seems like honorable finance minister had an obligation to match this target amount only. Let's debunk major measures and their pros and cons in the near future. Migrant Workers As lockdown came into force, the businesses were shut down and daily earner workers had nowhere to go. They started returning back to there home town, covering hundreds of kilometers by foot as no transportation services are allowed during the lockdown. The demand of the masses was to provide food, minimum pay, and employment guarantee to incentivize them to return to cities as after lockdown there will be a huge shortage of labor. Measures for a Migrant worker in Atmanirbhar Package :

  • The migrant workers will be provided 5Kgs of grains and 1kg of chana per month.

  • The government allocated an additional Rs. 40,000 crore over and above Rs. 61,000 crores to the MNREGA scheme.

  • The worker will be provided with living space at affordable rent under Pradhan Mantri Awas Yojana.

  • National portability of Ration cards by March 2021.

  • Special liquidity credit facility for 5 million street vendors of up to Rs. 10,000 Crores


  • Additional allocation to MNREGA can kick the demand in rural areas.

  • Help to the migrant workers by providing free food supply.

  • According to the government, Portability is going to help 80 Million workers to get food from any ration depot.


  • There is not much immediate benefit for the migrant worker as most of the measures will work after the lockdown is lifted.

  • Contractors are liable to provide affordable living space for the workers under the Migrant worker act which is rebranded as Pradhan Mantri Awas Yojana.

  • Many street vendors will not be going to choose the special liquidity fund provided to them as they generally don't have any collateral with them and Rs. 10,000 crore to 500 million is quite less.

  • Only the date for Ration Card Portability is extended. Portability is already operational in 12 states of India and for full implementation, the earlier date was 30th June 2020 which is now extended to 31 March 2021.

Farmers and Agriculture Sector Farmers are the backbone of India. In India, 70% of the rural household depends on the agriculture-related activities and still, farmers are so much ill-treated in India by the complex government schemes, unfair prices, and the middlemen. Low prices and falling demand due to coronavirus made the Indian farmer miserable. The Atmanirbhar package more or less beneficial for the Indian farmers but only if implemented correctly. Measures for the Indian farmer and Agriculture Sector -

  • Rs. 1 lakh crores financing facility for funding agriculture infrastructure projects.

  • Rs. 65,000 Crores for various sectors including fisheries, dairy, animal husbandry, beekeeping, and other agricultural sectors.

  • Refinancing of additional Rs. 30,000 crores over and above Rs. 90,000 crores into NABARD (National Bank for Agriculture and Rural Development).

  • Essential commodities Act to be amended.

  • Framing legislation to change the selling of the farmer's goods directly to the customer in any state in India against initially allowed only by Agricultural Produce Marketing Committees (APMCs).


  • 25 million farmers will be benefitted from the refinancing of the NABARD via Kisan credit card (KCC).

  • Agricultural Infrastructure fund will be going to boost the storing facility for the farmers via cold storage, aggregation points, and warehouses.

  • New Framework will help ease in inter-state trade.

  • Many crops and farm produce will be out of the essential commodity act which will help to regulate the prices and elimination of state government excess power imposition such as stock limit.

  • Rs. 15,000 crore to dairy will help to increase milk production by 50%.


  • All the measures are long term measures and nothing for the low prices and falling demand, as no immediate push is given to the Agri sector.

  • Loan via Kisan Credit Card was available to 25 million farmers even before the Atmanirbhar package.

  • For implementing the amendment in the essential commodity act, the government has to wait for the monsoon session.

  • The new legal framework for inter-state trade limits the state's power to just mandis within their boundaries.

EPF contribution and Tax Relief At present, all the entities employing more than 20 people are required to make a contribution to the employee provident fund which is a total of 24% of the basic salary of the employee. Half of the 24% is deducted from the employee salary and the other half is paid by the employer. This contribution is reduced under Atmanibhar Economic package to provide more cash in hand of employer and employee. Measure for EPF and Tax Relief

  • Total EPF contribution is reduced from 24% to 20% for the next three months.

  • The government extended the subsidy under Pradhan Matri Gareeb Kalyan Yojana (PMGKY) for the next three months from June to August 2020. Under this scheme, the government provides an entire contribution to EPF of the employer for the company that employs less than 100 employees, and at least 90% of the worker earning fewer than Rs 15000.

  • The tax collected at source and Tax deducted at source for the non-salaried person is reduced to 25% of their existing rates.

  • The tax dispute scheme Vivad Se Vishwas is extended until December 31st,2020.

  • Extended the deadline of return filling to November 30, 2020.


  • The government estimates that tax relief will provide Rs. 50,000 crore liquidity in the system.

  • Date extension of Vivad Se Vishwas Scheme will help many to rethink this option.

  • The reduction in EPF contribution will provide Rs. 6750 crores of liquidity for three months.

  • 4% reduction in EPF contribution will benefit 6,50,000 establishment and 43 million workers.


  • EPF reduction and Tax relief will have a marginal effect on wages and are only short term measures.

  • Lower EPF contribution will not be available to the workers who are benefitting under the PMGKY and this scheme only benefits small firms

  • The tax liability on the taxpayer remains the same even by reducing the TDS and TCS as advanced tax date is still June 15, not adherence to which attracts interest plenty.

Discoms The distribution companies(Discoms) in India, from the past many years, were facing consistent losses due to power loss due to insufficient system and have skyrocketing dues of Rs. 92000 crore to power generation companies. Many reform schemes were build-up for the Discom's financial restructuring but losses keep piling up year after year. Measure for Discoms

  • Liquidity injection of Rs 90,000 crores by the Power finance corporation and Rural Electrification Corporation.

  • Providing rebates via central government power generation companies on the condition that this will be passed on to the end-users.


  • Rs. 90,000 crores infusion will be going to provide liquidity ease to Discoms

  • Rebate of 20-25% can be transferred to the costumers reducing their bills.


  • The structural problem of technology inefficiency still remains.

  • The loans to Discoms will be against the subsidy provided to them by the state government. Unless the state provide sovereign guarantee and allocates budget to Discoms, the Discoms will not get any grant.

Contractors and MSMEs India's economy can become big only when it can work at the micro-level and provide support to the small industries and the establishment. MSMEs sector is worst hit by the COVID-19 and was in need of huge stimulus to bring it back on track. Due to lockdown, these MSMEs and the contractors are unable to run their respective businesses and projects. Measures for Contractors and MSMEs

  • The government has changed the definition of Micro, small and medium enterprises. Initially, the definition included solely investment cost which can differ among the businesses which hinder many companies to take benefits of many schemes ran by the government. Now the MSMEs definition includes the investment as well as the turnover of the enterprise.

  • The government has provided Rs. 3 trillion loans for 4.5 million enterprises. These loans will be collateral-free and available till 31 October to only those MSMEs with Rs. 25 crores loan outstanding or Rs. 100 Crore turnover. Loans will be 100% guaranteed by the government and will have a moratorium of 12 months.

  • The government is going to provide Rs. 4000 to MSME Ministry's Credit Guarantee Fund Trust for Micro and Small Enterprises (CGFTMS).

  • No differentiation between service and manufacturing enterprises.

  • Six months extension is given to companies and contractors who are unable to do work due to COVID-19. These extensions are given for completion dates as well as intermediate target dates.

  • To provide cash flow, the government will be releasing bank guarantees according to the work done by the company.

  • Rs. 10,000 crores fund of funds will be created to help MSMEs to expand and to list in the market of their choice.

  • The government will not let any foreign firm bid for the contract under 200 crores.


  • Companies with more capital can enjoy the benefits of small firms.

  • Loans provided to the MSMEs can help in generating a lot of income.

  • Contractors don't have to seek an extension on case to case basis.

  • Release of Bank Guarantees will ensure adequate liquidity.


  • The reclassification of MSMEs is not a stimulus but an old bill that was approved in Feb 2018. It is again rebranded in Atmanirbhar Package.

  • Providing collateral-free loans with a 100% guarantee can create a moral hazard among bank and the borrower as both of them know that if defaulted, the government is going to pay the loan.

  • Extensions of contracts may lower the IRR (Internal Rate of Return) of the project.

  • As projects are extended even in the real estate sector many home buyers will have to wait even longer for their home possession.

NBFCs and other Micro Finance Companies This sector was already in huge crisis even before the COVID-19. Many NBFCs and Micro Finance companies were unable to raise funding for their operations and were near the brink of closure. Large Deafualts were new normal in this sector and banks are quite risk-averse to provide loans to these NBFCs. The initial measures by the government and the RBI are not sufficient to keep them afloat in the market as all were liquidity measures that provide banks the liquidity to lend to NBFCs rather than the credit guarantees by the sovereign entity. Measure for NBFCs and Other Shadow Banking

  • Special Liquidity scheme for NBFCs and Housing finance companies of Rs. 30,000 crores with credit support by the government.

  • The government announced Partial-Credit Guarantee Scheme 2.0 (PCGS 2.0) in which the government will bear the first 20% loss as a guarantor even for unrated papers.


  • Bank will start lending to the struck NBFC sectors as credit risk is now born by the government itself.

  • Small lenders can now get loans from the bank as these are mostly unrated and initially no bank was providing loansCre to them.

  • Credit Loss in the Microfinance sector is not more than 0.5% while the government is providing 20%, which is a great confidence booster to the banks.


  • Much of small microfinancing companies were demanding the restructuring of loans which is under moratorium.

  • NPAs of the banks can shoot up by providing loans to low-grade entities.

Various other measures are done by the government like privatization of almost every sector, more FDI in the defense sector, changes in insolvency, funding for the social infrastructure, and many more. All these measures are more sort of bank loans than a direct stimulus to the economy. According to Business Standard the fiscal burden of the whole package is only 11% of the total package (Refer the Image). In this time of crisis, the government needs to think of creative ways to kick start the economy. Businesses are not operating and Industries are halted, there is no source of income to the common man of India. Loans EMIs are pending of common man as well as the businesses. In this scenario which businesses will think to borrow additional capital from the bank.

The Indian Financial system was not in great shape even before the pandemic. Provisioning for the losses and Nonperforming assets was haunting the financials of the banks. Now The government has just shifted all the economic burdens on the shoulders of banks which already are in the confusion that how they are going to prevent the already sanctioned loans to turn into Non-performing Assets. Though the Indian government prevented the stretching of its fiscal deficit, the repercussions of transferring the load to banks will be going to felt in the future.


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