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The alteration of the definition of MSMEs
is definitely good for them. So far, there was an incentive to remain small due to the benefits to be drawn by being so classified. However, now they could grow to higher levels as specified, which will help to build scale. On-time payments will help them to get their dues from government agencies.
The other big announcement pertains to the NBFCs, which do not have a good rating. For this, there are two measures. The first is guaranteeing Rs 30,000 crore of debt and giving 20 per cent first loss guarantee of Rs 45,000 crore. These, as can be seen, would be contingent liabilities for the government and hence not really add to the fiscal deficit until invoked.
The third big measure is for Discoms
for Rs 90,000 crore, which will be funded by Power Finance Corporation (PFC) and the Rural Electrification Corporation (REC) against receivables of these distribution companies. This move will ensure that the Discoms
can make payments to their suppliers, which would be the generators and transmission companies. Hence, this is good move for the power ecosystem.
These two big measures would involve around Rs 3 trillion from banks, Rs 30,000 crore from the budget for subordinate debt and equity support (it can be assumed that Rs 40,000 crore of the Rs 50,000 crore would be funded by private players), and Rs 75,000 crore as contingent liability. The third is being supported by the public sector undertakings (PSUs), which would probably have to use their reserves or borrow from the market. Given their good credit rating, they would be in a position to do so at a lower cost. Quite clearly, these big measures have been kept outside the direct ambit of the Budget as of now and involves other agencies like banks
and PSUs providing the funding.
Given that around Rs 7.5 trillion of relief was provided by the Reserve Bank of India (RBI) and government earlier, the balance Rs 12.5 trillion was to be expounded on. Wednesday’s measures are for around Rs 5.85 trillion (including Rs 50,000 crore in TDS, which is not a give-away as it has to be paid at the end of the day). Another Rs 6.5 trillion or so would probably be announced over the next few days. We need to wait and watch.
(Madan Sabnavis is chief economist at CARE ratings. Views are personal.)
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