Here is what the Stimulus 4.0 entails.
1) Loan guarantees for COVID-hit sectors
Sectors with a high degree of customer interface like tourism, hotels, aviation and retail have been among the worst hit by the pandemic. That is evident in their quarterly numbers. The government, on 28 June, announced a special Rs60,000cr loan guarantee package for COVID-hit sectors. Overall allocation is Rs110,000cr but we have to deduct Rs50,000cr targeted at sprucing the health sector. The Rs50,000cr health allocation is aimed at scaling up medical infrastructure and new medical projects with maximum loans of Rs200cr with guarantee for up to 3 years.
2) Emergency credit line guarantees enhanced
To be fair, the emergency credit line guarantee is not a new package as it is already part of the Atma Nirbhar (self-sufficiency) scheme. However, this allocation has been enhanced by Rs150,000cr to include sectors that are impacted by the pandemic. This will provide bridge credit lines with guarantees to ensure easy credit for pandemic-stressed sectors.
3) Time to be aggressive on public health allocation
This is over and above the Rs50,000cr allocation under the healthcare credit guarantee scheme. The government announced additional funding of Rs23,220cr towards increasing ICU beds, oxygen availability and medical equipment. The recent experience was that higher allocation for health centres led to a rapid growth in vaccinations across India. Government wants to replicate that experience in a bigger way. This allocation will be aimed at diagnostics, testing, genome sequencing, antigen testing etc.
4) De-risking exports via export insurance
Finance Ministry announced additional corpus to the National Export Insurance Account or NEIA to empower the underwriting of additional Rs33,000cr of project exports. NEIA is a critical link in post-pandemic recovery as it entails buyer’s credit from EXIM Bank to exporters with low credit-worthiness. In the next few years, Finance Ministry proposes to boost export insurance cover via capital support of Rs88,000cr.
5) Multiple-point boost for tourism and jobs
Tourism has been a major job creator in India; directly and indirectly. Unfortunately, tourism has been the worst impacted by the pandemic due to travel restrictions. The relief package envisages financial support to over 11,000 tourist guides and small tour operators in the form of personal loans or working capital loans. The loans will be provided under the proposed loan guarantee scheme. These loans will be provided without processing charges and with zero collateral. To boost the tourism demand side, government will provide free tourist visas to nearly 5 lakh tourists up to March 2022.
6) Extending jobs scheme by 9 months and free food too
The Atma Nirbhar Bharat Rozgar Scheme was slated to expire on 30 June. Now the FM has extended it by another 9 months till March 2022. This is an extended wage subsidy scheme wherein the government subsidizes employees in tough times by contributing into the EPF accounts of employees. The idea is to boost job creation at the lower end of the formal jobs hierarchy. This will be an incentive for employees joining back from retrenchment and also for the employers as the employer contribution is sponsored by the government.
To boost agriculture, the government announced Rs14,775cr of additional subsidy for DAP as well as potassic and phosphatic fertilizers. In addition, government also extended its free 5KG food-grain scheme till November 2021 entailing an additional outlay of Rs93,869cr.
7) Broadband and power for every village
The government has announced a Rs3.03 trillion outlay for result-linked power distribution scheme of financial assistance to DISCOMS. These funds are meant for infrastructure creation, upgradation, capacity building etc. Out of this outlay, a sum of Rs97,631cr will be the share of the central government. Additionally, the government has also made an allocation of Rs19,041cr for the Bharat Net program to provide high quality broadband connectivity to all inhabited villages in India.
Where is the money going to come from?
That is the billion dollar question. In terms of outlays, this COVID 4.0 stimulus entails central outflow of Rs628,993cr or nearly $84 billion. With fiscal deficit budgeted at 6.8% for FY22 and already likely above 8%, this would further push up the fiscal deficit to closer to FY21 levels of 9.5%. Of course, the intent is to fund this stimulus through an aggressive program of asset monetization. That would be easier said than done!. However, there is no gainsaying the fact that the stimulus comes at the right time as a feel-good factor for markets.