SBI analysis of Modi Govt's economic relief package; Top 5 takeaways

After the announcements made on 13th May targeting MSMEs and self-employed, the Government yesterday announced measures which exclusively focus on the poor including migrants, street vendors and farmers.

Through the Banking channel, Government is also supporting the Shishu Loan Holders under MUDRA Scheme, Street Vendors and Farmers. Photo: Reuters

After the announcements made on 13th May targeting MSMEs and self-employed, the Government yesterday announced measures which exclusively focus on the poor including migrants, street vendors and farmers. Total stimulus worth Rs 3.16 lakh crore has been announced. With this the total package announced so far is at Rs 16.45 lakh crore, implying residual package of Rs 3.54 lakh crore of Rs 20 lakh crore remains to be announced.

Speaking on yesterday's announcements by the Finance Minister, Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India (SBI), said, "The recent crisis has shown how important it is for a huge country like India to have an infrastructure which promotes interoperability between the States and Center. The mission mode implementation of One nation One Ration Card is a step in the right direction. So is making available the portability of welfare benefits for migrant workers and those having no ration card. The changes in labour laws that are being mulled over in Parliament if implemented properly could bring positive changes in the status of the labourers in this country. The Center and States should, however, work in tandem to achieve these objectives within the mandate of overall labour welfare."

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1] One nation one ration card: All States/UTs are expected to implement the One Nation One Ration Card scheme by March, 2021. However, the technological architecture has to be put in place quickly in more than 5.27 lakhs Fair Price Shops (FPSs) (2018 data) operational across the country.

2] Mudra Shishu Loan: Through the Banking channel, Government is also supporting the Shishu Loan Holders under MUDRA Scheme, Street Vendors and Farmers. Easy access to credit for street vendors is urgently required as they have seen the maximum impact of lockdown. We estimate that top ten states accounted for around 35 lakh street vendors with Uttar Pradesh taking the lead with 7.8 lakh vendors followed by West Bengal at 5.5 lakh vendors.

3] Push to affordable housing: The Credit Linked Subsidy Scheme and Affordable Rental Housing scheme will give a push to Housing, thus supporting the economy by increasing demand for construction raw materials.

4] Job creation: Furthermore, plans worth Rs 6000 crore will be approved shortly under the Compensatory Afforestation Management & Planning Authority (CAMPA) set up under Compensatory Afforestation Fund Act, 2016. This is expected to support sustainable employment opportunities.

5] Relief for marginal farmers: NABARD will also extend additional refinance support of Rs 30,000 crore for crop loan requirement of Rural Co-op Banks & RRBs. Due to the COVID-19 crisis, NABARD may have faced difficulty in raising money from the market. On 17 April, RBI has given a line of credit support to NABARD of Rs 25,000 crore at repo rate to refinance during this Kharif Season. SBI expects that RBI might give another Rs 30,000 crore liquidity support to NABARD to ease the stress and cost of borrowing.

"All in all, the direct fiscal hit after the announcement of 3 packages is only 0.6% of GDP at approx. Rs 1.29 lakh crore. However, support has been provided to the needy by facilitating their access to food and credit. Of the total announcement of Rs 3.16 lakh crore made today, the total cash outlay for the Government will be around Rs 14,500 –14,750 crore. The impact of today’s package on fiscal deficit is expected to be a minuscule at 0.07% of GDP,' said Dr Ghosh.

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