Modi Package Announcement: What it means for the economy?

Analysis Aug 30, 2020

The Indian economy is a clear victim of COVID-19 and we have been staring at the unemployment numbers and the dismal performance of the stock market for almost 3 weeks now. After the initial stimulus package of Rs 1.7 Lakh Crores aimed at farmers and daily wage workers, Prime Minister Modi has tried to inject the lagging economy again with a stimulus package of Rs 20 Lakh Crores this time.

How does this impact the economy? We have listed down some of the impacts of this package.

1. The power distribution companies

There was already a 3-month halt on any payments for the electricity bought by these companies like Power Finance Corporation(PFC), Rural Electrification Corporation Limited(REC), etc. In today’s announcement, Nirmala Sitharaman said that we will add Rs 90,000 crore to clear outstanding bills and salaries for the employees.

2. China

As China’s manufacturing industry tries to recover from COVID-19, Modi is trying to entice foreign investment in India’s manufacturing industry which is much-needed support to revive the Indian economy. He has been in talks with the US, South Korea, Japan, and other south Asian countries to get some FDI into the manufacturing industry.

3. Employee Provident Fund(EPF)

FM Sitharaman announced that employees’ contributions to EPF will be reduced from 12% to 10% for the next 3 months.

  • This will give the employer some breathing room as they won’t have to match 12% but only 10% and saves them Rs 6750 crore collectively.
  • The employee will be able to get more in hand cash every month, which will increase the purchasing power and thus boost the economy.
  • Also, and maybe the most important one is that the government will not have to give 8% interest on EPF on that 2% which will reduce the government’s liabilities.

4. Micro, Small & Medium Enterprises(MSME)

MSMEs are getting a huge relief by providing a collateral-free automatic loan where the business owner can apply for a loan without any collateral. The total allocation for this is around Rs 3 Lakh Crore. This will make any company with more than a turnover of Rs 5 Crore eligible to apply for a loan.

5. Make In India

The Finance Minister announced that the government will not allow global tenders less than Rs 200 crores to be given to companies outside of India. This is again a step towards boosting India’s manufacturing industry which helps local businesses flourish as well as reduce the Imports on India thereby reducing the deficit.

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Resources:

Financial Times

IndianExpress

Economic Times

Mint

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