TREASURE HUNT WITH CLUES BUT KEYS MISSING

The expectations rose when the Prime Minister announced it as a 20 lakh crores economic stimulus package and emphasized that it was 10% of India’s GDP value. This was an attempt to match the size of such measures in Western countries. 5 days of announcements by the Finance Minister since the Prime Minister’s magnanimous 8 pm address have spelt out the details. It has led to conclusions like – these rollouts are in the nature of budgetary announcements rather than a fiscal stimulus package. The expected objective was economic revival in the wake of disruption caused in the past two months and which is likely to continue without a clear end date.

As per estimates, Only about 10% of the package might result in cash outflow to the needy sections of businesses/people. The Government has aimed for maximum bang for minimum buck. Most of the relief measures are in the nature of regulatory waivers, higher credit on offer or long term guarantees. There are no silver bullets for businesses or people. Some long pending structural reforms, which are politically and socially sensitive, have been pushed through. Hence, it will not do anything to mitigate the immediate economic crises for businesses.

 The key takeaways can be summarized as follows

  • Additional liquidity in system to ensure more loans can be availed by companies with good balance sheets. Increased credit availability to needy segments viz. MSME, NBFCs, farming, fishers, organized sector and its workers. Some reforms to ease execution and smoothen disbursements.
  • Little direct payouts, mostly extension of credit. Attempt has been made to reduce immediate fiscal impact for Government, push the actual spend to later time periods or other PSU/PSU Bank balance sheets. MSME guarantees will kick in after 2 – 3 years.
  • No specific support rolled out for the most severely affected sectorsof airlines, tourism, hotels, hospitality, malls, multiplexes, real estate, etc. We are likely to see many bankruptcies and closures in this space due to new operating rules.
  • No support measures for the ‘large employment’ business segmentslike manufacturing, construction, textiles, etc. They are reeling under the impact of high fixed costs, interest expenses, availability of labour due to workers returning back home from cities.

The measures are welcome but will not go far in reducing the shock to the economy due to the lockdown and destruction on the demand side. They can help the ‘Supply Side’ over the medium term but revival of demand is a big question mark. The Government is relying on the likely pent up demand of the huge populace during the disruption period. These rollouts have come late compared to most other economies which executed these at the start of the period of paralysis for commercial activities when businesses were struggling to bear costs.

We can conclude that it may not be possible for India to become AtmaNirbhar, but it would be better for businesses to think and plan according to this new catch word.

As mentioned by Mr Basant Maheshwari, an Equity Market Guru, ‘With less than 10% in cash outlay (for executing these measures), even the world’s best Investment Bankers couldn’t have stitched a better deal

Kaustubh Roplekar

CFO at Premium Transmission Private Limited

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