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Government annnounces relief measures; large focus on loan guarantees

Additional spending of new measures at only INR500b (0.2% of GDP) in FY22

* The Finance Minister announced 16 measures clubbed together under the heading ‘Economic Relief from Pandemic’ on 28th Jun’21. These measures included extensions/reiterations of measures already announced earlier and few new measures.

* Of the 16 announcements – three reiterations were a) additional fertilizer subsidy of INR148b already announced on 20th May’21, b) the extension of Pradhan Mantri Garib Kalyan Anna Yojana (PMGKY) worth INR939b, announced on 7th Jun’21, and c) INR3t for Reform Based Result Linked Power Distribution Scheme (of which center’s share would be INR967b).

* The government initiated two new schemes under loan guarantees – A) a scheme worth INR1.1t for COVID-19 affected sectors. This included INR500b for up scaling medical infrastructure targeted towards underserved areas (apart from the eight metropolitan cities in India) at a maximum interest rate of 7.95% and INR600b for ‘other’ sectors at maximum interest rate of 8.25%, part of which would support more than 11,000 tourist guides and stakeholders. B) Guarantee to banks for loans to new or existing NBFC-MFIs or MFIs for on lending upto INR0.125m to approximately 2.5m small borrowers at an interest rate capped at 2% over the Marginal Cost of Lending Rate. This guarantee cover will be available till 31st Mar’22, or till guarantees amounting to INR75b are issued, whichever is earlier.

* Additionally, the government raised the overall cap of admissible guarantee under the Emergency Credit Line Guarantee Scheme (ECLGS) from INR3t to INR4.5t now. This scheme was first launched in May’20.

* The remaining announcements cover relief measures for the tourist sector (incentive for tourists to visit India by not charging visa fees to the first 0.5m tourists costing the government INR1b), extension of the Atma Nirbhar Bharat Rozgar Yojana upto 31st Mar’22 from 30th Jun’21 earlier, INR150b worth new healthcare scheme focused on short term emergency preparedness with special emphasis on children and pediatric care/pediatric beds, INR330b worth boost for Project Exports through National Export Insurance Account (NEIA) over 5 years , INR 880b worth boost to Export Insurance Cover by infusing equity in Export Credit Guarantee Corporation (ECGC) over five years, INR 190b for Broadband to each Village through BharatNet PPP Model over two years, extension of the product-linked incentive (PLI) scheme to include Large Scale Electronic Manufacturing and the tenure of the scheme was also extended by one year i.e. till FY26, among others (Please refer to Exhibit 3 for details).

* Overall, while the total estimated benefit of these 16 announcements stood at INR6.3t (or 2.8% of GDP, assuming a 15.6% YoY growth in nominal GDP in FY22), 43% of this were loan guarantee schemes (both new and extensions of previous schemes). Of the remaining INR3.6t, we believe that the total fiscal outgo of today’s announcement is likely to be ~INR1.6t (0.7% of GDP) in FY22. In fact, INR1.6t includes INR1.1t announced earlier on account of additional fertilizer subsidy and free food distribution. Therefore, additional spending of announcements made on 28th Jun’21 is worth INR500b (0.2% of GDP).

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