Boost the economy – editorials
The first part of India’s Rs 20 lakh crore economic package was announced on Wednesday, the second, taking into account the relief for the poor and marginalized announced in late March, and the announcements of the Reserve Bank in March and April, and provides some pointers on what the government hopes to achieve. That Narendra Modi’s government would focus on micro, small and medium-sized enterprises (MSMEs) was a fact. His first package focused on individuals at the bottom of the pyramid. It was only natural that he would then turn his attention to the companies at the bottom of the pyramid. The package offers small businesses easy credit, guaranteed by the State; support for those burdened by loans that they cannot pay; and an infusion of capital. It also redefines them, removing a disincentive to grow (and being competitive), and reserves business for them by not allowing global tenders for government purchases of less than Rs 200 crore. All of this, credit, competitiveness and emphasis on the local, flows from the Prime Minister’s speech on Tuesday.
The extension of three more months (June, July and August) of support of provisional funds for companies and workers, in companies that employ less than 100 people, with 90% of income below Rs 15,000 per month, is effectively a support 24% salary for small businesses. , and the reduction in the contribution of employees and employers of other companies to the provident fund (from 12% to 10%) will provide Rs 6750 crore of liquidity, divided equally between companies and employees. Liquidity was another topic in the prime minister’s speech on Tuesday. The measures also addressed the issue of an impending crisis in the shadow banking sector by providing it with a special liquidity scheme of Rs 30 billion fully guaranteed and a partial credit guarantee scheme of Rs 45 billion. There was also a focus on real estate and power, both sectors extremely stressed.
Finally, in an attempt to put more money in people’s hands, the government announced a 25% reduction in taxes deducted or collected at the source, but only for non-salary payments. This covers everything from interest on fixed deposits to dividend and rent payments, and will result in a flow of Rs 50bn more into the system (which lucky people will spend). This is perhaps the best-targeted part of the measures announced Wednesday, and the only one that will help the middle class. More measures of this kind, reducing taxes or transferring cash to individuals and businesses, will be needed to stimulate demand and get the wheels of the economy moving.