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Quick Take On Stimulus Package Announced By GOI


The measures announced were long awaited and the delay gave the opposition a rallying cry in criticizing the Government of India for acting slowly. There was little room to maneuver in the fiscal deficit and each announcement made by the Government had to be well measured in terms of having some headroom in case things turn out for the worse. Going all guns blazing on the first round of measures would leave the Government running for cover if the COVID induced economic stress deepens. This could well be the case still since no one really know how the demand will pick up in the near future, yet we can hope it improves.


Now that the announcements are being made, how does it affect us as individuals? Let us look at what is in for us as individuals and not as entrepreneurs. Also, my take on it.

 

Direct:

1. EPF Relief As per last month's relief measures, the Government is bearing the employee contribution for companies with less than 100 employees and out of those, 90 per cent should be earning less than Rs.15,000 a month. In the latest announcement, this relief is extended to all EPF establishments. It remains to be seen if this cuts across all companies or it is just a coverage extension of the earlier eligibility rule. Statutory PF (Government and Semi Government Employees) get a 2% reduction in PF contribution. So that’s 2% more money in eligible individual’s hands to "spend". Personally, I don't see a huge benefit for individuals, unless we are in severe shortage of liquid cash. The 2% benefit is better held on a savings scheme that gives higher return than your FDs. Millennial are used to spending and savings as a mentality is not cultivated. This one just adds to that list.


2. TDS reduced by 25% on all payments

This one is beneficial. It gives you more cash flow until the end of the financial year when you need to pay the actual tax in sum. You can also gain notional savings by pre-calculating the 25% benefit upfront and invest the money in a tax saving scheme such as long term FD or ELSS as lump sum.


3. Income Tax Refunds

Another measure that puts more money into people's hands to spend. If you are not cash crunched, save it under tax saving schemes.



In Direct:

1. Equity Infusion through Fund of Funds for MSME

This is a mixed bag. The positive is, since the Government is getting a stake in the MSME companies, there would be more scrutiny on their business model and transparency, which could have a positive effect in improving the quality delivered by these companies. On the contrary, the taxpayer’s money is used on equity stake, meaning the taxpayer indirectly carries a holding on these companies. Therefore, this piece of tax money is not going to the civic projects or used for improving standard of living.

2. Other liquidity measures

The other liquidity measures such as loan benefits to MSME, liquidity injection to DISCOMs (Power Distribution Companies) and NBFCs indirectly help the small/medium scale companies to remain afloat. Employee retention would improve and thereby helping the common man. One should hope that the companies become profitable and does add up to further NPAs, thereby starting a new NPA cycle.

 

Having said all that, will these liquidity measures really help? The risk taking mentality of the businesses is zapped and most companies are on damage limitation mode rather than aggressive ramp up of production & expansion. Likewise, their supply needs to be supported by equally booming demand. But with so much distress and fear among the people, it's difficult to see how the people will open up for consumption. We need to wait and watch how things pan out and hope for the best.

Until the next tranche of stimulus announcements are made, stay safe!

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