CII bats for big ₹15 lakh crore stimulus to save crippled economy

With the battle against coronavirus looking long-drawn while the lockdown continues to severely cripple the economy, industry body CII has urged the government to immediately announce a stimulus package of ₹15 lakh crore focusing on support to the poor and the industry, especially MSMEs.

"With economic activities being restricted for over 50 days now, the negative impact on the economy is expected to be even more significant than what we had earlier anticipated. This needs to be offset by a large fiscal stimulus so that jobs and livelihoods are protected. CII recommends the government to announce an immediate stimulus package of at ₹15 lakh crore, which translates into 7.5 per cent of GDP," Vikram Kirloskar, President, Confederation of Indian Industry (CII), said.

The government imposed a lockdown to arrest the spread of the contagion but it has come at a huge economic cost. By the time the third phase of the lockdown ends, the country would have lost almost two months of output.

Giving the breakdown of its demand for a Rs 15 lakh crore stimulus, CII has said that this should include cash transfers amounting to Rs 2 lakh crore to JAM account holders, in addition to the Rs 1.7 lakh stimulus already announced.

"A key fall out of this economic slowdown would be the human cost in terms of loss of jobs and livelihoods, which need urgent government intervention," said Chandrajit Banerjee, Director General, CII.

It should be ensured that the migrant labourers are kept within the purview of the proposed cash transfers, he added.

Further, in order to provide enterprises the immediate support to pay salaries to its workers and avoid any job losses, CII has suggested a provision of ₹2 lakh crore for additional working capital limits to be provided by banks, equivalent to April-June wage bill of the borrowers, backed by a Government guarantee, at 4-5 per cent interest.

To support the estimated 63 million MSMEs which have been battered by the pandemic, CII has suggested a credit protection scheme for MSMEs whereby 60-70 per cent of the loan should be guaranteed by the government, i.e. if the borrower defaults, the government should repay the bank upto the amount it has guaranteed, so the risk to the lender is limited. This will encourage the banks to lend to the ailing sector so that their working capital needs are met.

In addition, CII has suggested the creation of a fund or SPV with a corpus of ₹1.4-1.6 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. This will provide adequate liquidity to industry, particularly the stressed sectors such as aviation, tourism and hospitality.

In order to create a significant multiplier impact on boosting demand in rest of the sectors and enhancing long-term productivity, funding public infrastructure has been found to be a potent option. In this regard, CII has suggested an allocation of ₹4 lakh crore be made on a public works programme that will create job opportunities.

CII has also suggested an allocation of Rs 2 lakh crore to be earmarked for bailing out state-run electricity distribution companies that have been accumulating losses and burdening the state exchequer.

Further, to protect the financial sector for meeting the credit needs, as well as absorb some shocks from potential insolvencies, an allocation of ₹2 lakh crore for bank recapitalisation is required. This will help public sector banks manage any surge in their NPAs, CII has said.

The industry body has also suggested that to finance the broad elements of the stimulus package, Rs 4 lakh crore support from the subscription of government paper by the RBI should come. A lower amount of ₹2 lakh crore can be borrowed by the Government from the secondary market, so that bond yields remain moderate. Further, substantial reduction in expenditure of around Rs 4 lakh crores is possible by reducing some of the discretionary expenditure such as centrally sponsored schemes, CII suggested.