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The Confederation of Indian Industry (CII) on Thursday came up with several fiscal intervention suggestions that could be adopted by the Government to help MSMEs and industry tide over the unexpected economic costs to businesses due to the Covid-19 induced 40-day nationwide lockdown.
The situation requires immediate, across-the-board intervention from the Government, said Chandrajit Banerjee, Director-General, CII.
“There is no doubt that the economy is going through turbulent times, and India will have to spend, to navigate its way out of the current crisis. At this stage, the government must do whatever it takes to tide over the crisis, “ Banerjee said.
As part of the urgent fiscal interventions, CII has suggested cash transfers amounting to ₹2 lakh crore to JAM account holders, in addition to the ₹1.7 lakh stimulus already announced. CII has also suggested additional working capital limits to be provided by banks, equivalent to the April-June wage bill of the borrowers, backed by a Government guarantee, at 4-5 per cent interest.
In addition, the CII paper has suggested the creation of a fund or SPV with a corpus of ₹1.5 lakh crore, which will subscribe to NCDs/bonds of corporates rated A and above. The fund can be seeded by the Government contributing a corpus of ₹10,000-20,000 crore, with further investments from banks and financial institutions such as LIC, PFC, EPF, NIIF and IIFCL. This will limit Government exposure while providing adequate liquidity to industry.
These suggestions form part of a paper ‘A plan for economic recovery’ released by the industry body.
For MSMEs, CII has suggested a credit protection scheme whereby 75-80 per cent of the loan should be guaranteed by RBI, that is, if the borrower defaults, the RBI should buy the loan and repay the bank up to 75-80 per cent of the loan, so the risk to the lender is limited. SIDBI could provide the guarantee for loans to industry and trade, while Nabard could provide the guarantee for loans to agro-processing sectors.
In its paper, ‘CII has laid out its growth expectation under three scenarios and forecast GDP growth of (-) 0.9 per cent in the worst case, to 1.5 per cent in the best case during 2020-21.
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