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Views on Economic Stimulus Package Announced - Acuité Ratings & Research Limited

Posted On: 2020-03-26 15:17:27

Suman Chowdhury, President - Ratings at Acuité Ratings & Research:

"The announcement of the Rs. 1.7 Lakh Cr stimulus package under Pradhan Mantri Gareeb Kalyan (PMGK) is the right step to address the needs of the vulnerable segments of the population who will be severely impacted by the ongoing lockdown and economic disruption triggered by Covid-19. The government has tried to ensure food security for the poor through the additional free supply of cereals via PDS for the next 3 months which should benefit a large section of the domestic population. This apart, sizeable cash infusion is envisaged through DBT in Jan Dhan accounts for specific segments of the vulnerable population - mainly farmers, rural daily wage workers, construction workers, senior citizens and women in the low income groups.

One significant initiative is the decision to pay the statutory PF dues for those SMEs who have up to 100 employees with average monthly salaries less than Rs. 15,000. While the actual number of small enterprises that will be able to avail this scheme is not clear at this point, it is surely a significant relief for the SME sector. This along with the government's decision to permit a delay in GST payments for 3 months and the announcement of several large banks to advance temporary credit line to SMEs, is likely to offset a part of the heightened liquidity pressures in the sector. The modification of the EPFO regulations to facilitate a one-time non-refundable withdrawal of PF balances up to 3 months of salary or 75% of the balances is a prudent move to support the short term cash flow problems for the mid-income population; however, the implementation of this scheme and disbursement of funds by EPFO in a lockdown scenario may pose a challenge.

The additional expenditure of Rs. 1.7 Lakh Cr will clearly intensify pressures on the fiscal deficit which can climb above 4.0% in FY21. However, Acuité continues to believe that the repair and revival of the economy through public expenditure is a priority in today's scenario where the slowdown in demand has been further hit by Covid-19. We also are of the view that over and above the current package, special regulatory dispensation for NPA recognition or loan restructuring may need to be considered to address the challenges in the financial sector arising from the likely spurt in delinquencies from all asset classes in the short term".

Source: Equity Bulls

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