ndia’s Covid-19 stimulus package – what does it mean for different industries?

Stimulus package 2020

India has announced a sizeable economic package (USD 280 Billion or INR 20 lakh crore, 10% of GDP). The intention seems to be to show that the Government cares about the economy and is willing to match global stimulus programs.

Hon’ble Prime Minister, Mr Narendra Modi announced the special economic package on May 12, 2020. Following which, the Finance Minister, Ms Nirmala Sitharaman, made daily detailed press conferences for five days. The package aims to promote self-reliance in India (“Atma-Nirbhar Bharat Abhiyan“) and to reduce the financial strain on the country due to the pandemic.

Break-up of the Stimulus package:

  • Earlier measures: USD 25.6 Billion:  Free food grains and cooking gas announced for the poor, with cash for some sections in March 2020
  • Tranche 1: USD 79.2 Billion: Includes funding — as well as loan guarantees — for small businesses, non-bank lenders, distribution companies and salaried workers.
  • Tranche 2: USD 41.3 Billion: Focuses on migrant workers, small farmers and the lower strata
  • Tranche 3: USD 20 Billion: Facilitates farmers, and such sectors as food processing and allied activities
  • Tranche 4+5: USD 6.41 Billion: The fourth included structural reforms in 8 critical industries – Coal, Minerals, Defence Production, Airspace management, Social Infrastructure Projects, Power distribution companies, Space sectors and Atomic Energy. The fifth tranche included allotting USD 5.3 Billion to MNREGA scheme, educational and health reforms, and IBC reforms.
  • RBI measures: USD 106.9 Billion: inclusive of liquidity measures announced by the Reserve Bank since March
  • Total: USD 279 Billion
Break-up of the Stimulus package 2020

Details of the Stimulus for each sector

More details of the impacts of COVID-19 on particular industries can be found in our Industry Expertise Updates for key sectors:

Agriculture Industry, Food Processing and Food & Beverage:

  1. USD 13 Billion for cold chains, post-harvest storage infrastructures etc.
  2. A fund of USD 1.3 Billion set up for a cluster-based micro food scheme, benefitting at least 0.2 Million Micro Food Enterprises.
  3. The Government will launch “Pradhan Mantri Matsya Sampada Yojana” for development of marine and inland fisheries to fill the gaps in value chains. USD 2.6 Billion will lead to an additional 7 million tons of fish production in the next five years and employ 5.5 million people.
  4. USD 1.7 Billion for vaccination of livestock in India to eradicate foot and mouth disease.
  5. USD 2 Billion on ramping up the dairy infrastructure and investments in cattle feed.
  6. USD 528 Million for growing of herbal and medicinal plants. One million hectares of land for growing medicinal and herbal plants, providing an income of nearly USD 650 Million for farmers.
  7. USD 65 Million allocated for beekeeping to help 0.2 million beekeepers.
  8. An amendment to the Essential Commodities Act will enable better prices for farmers. Foodstuffs including edible oils, oilseeds, pulses, onions and potato will be deregulated.
  9. The legal framework will be improved to enable farmers to engage with processors, aggregators, large retailers, exporters etc. fairly and transparently. Farmers’ risk mitigation, assured returns, and quality standardization shall be part of the framework.

Mining and Metallurgy 

  1. The Government plans to introduce commercial mining of coal. India focuses on self-reliance in coal production.
  2. Private investment encouraged in the mineral sector.
  3. Five hundred mining blocks auctioned through an open and transparent process. A joint auction of Bauxite & Coal mineral blocks to enhance the Aluminium industry’s competitiveness.

Aerospace & Defence sector:  

  1. Indigenization of imported spares, separate budget provisioning for domestic capital procurement.
  2. FDI limit in defence manufacturing under automatic route raised from 49% to 74%.
  3. Corporatization of Ordnance factory board.
  4. Restrictions on the utilization of Indian Air Space eased so that civilian flying becomes more efficient.
  5. India to become a global hub for aircraft maintenance, repair and overhaul.
  6. Airports Authority of India has awarded three airports out of 6 bids for operation & maintenance on Public-Private Partnership (PPP) basis. Additional investment by private players in 12 airports in first & second rounds expected around ~USD 1.7 Billion.

Energy & Utility sector:  

  1. Power Distribution Companies in Union Territories privatized in sync with the new tariff policies to bring in efficiency and stability to the entire power sector.
  2. Technology Development – Incubation Centres set up in the nuclear sector to foster synergies between research facilities and tech entrepreneurs. Research reactor established in the PPP mode for the production of medical isotopes.

Healthcare sector: 

  1. Health-related steps for COVID-19 containment: USD 2 Billion announced for states for essential items and testing labs, along with rolling out of teleconsultation services, the launch of the Arogya Setu app, and protection for healthcare workers with adequate PPE. Investment in Health infrastructure increased at the grassroots for health and wellness centres, with particular focus on aspirational districts
  2. All districts will have infectious disease hospitals at the block-level, and public health labs will be set up.
  3. Insurance cover of USD 600,000 per person introduced for health professionals.

Education:

  1. PM eVidya programme to start immediately. All Classes from 1 to 12 will have a TV channel each. Also, e-content for visually & hearing impaired.
  2. Top 100 universities granted permission to start online courses by May 30, 2020.

Automobile sector

  1. The Society of Indian Automobile Manufacturers (SIAM) have complained that the “Aatma Nirbhar Bharat” economic package has left out the auto industry.
  2. SIAM said it had several engagements with the Government at various levels and was looking forward to some direct fiscal measures for the auto industry from the Centre in the ~265 Billion USD stimulus package.
  3. According to SIAM President Rajan Wadhera, the agriculture sector package may benefit the auto sector indirectly in the medium term. Still, the Indian automotive industry needed an immediate stimulus to boost demand, which has not happened.
  4. The industry shrunk by 18 per cent last year. SIAM assessed the impact of Covid-19 and concluded that the sector could have a decline between 22 per cent and 35 per cent in various industry segments if the overall Indian GDP growth is at 0-1 per cent for FY 21.

Textile industry

  1. While the textile industry bodies welcomed Prime Minister Narendra Modi’s stimulus package, garment manufacturing companies are sceptical if there will be any significant gain.
  2. The Confederation of Indian Textile Industry (CITI) chairman T Rajkumar said that the new definition of Micro, Small and Medium Enterprises would help small weaving mills under the new MSME norms and many garment manufacturers will benefit.
  3. Another industry expert said that the credit guarantee scheme would benefit the companies as banks will now be in a better position to lend with reduced risk exposure. And collateral-free loans with a moratorium on interests will encourage MSMEs to borrow and sustain.
  4. A Sakthivel, chairman, Apparel Export Promotion Council (AEPC) said the Reserve Bank of India’s decision to extend the scheme providing interest subsidy for pre- and post-shipment export credit up to March 2021 help the apparel sector to access cheaper loans.
  5. Anup Mathew of Brand Club, an apparel manufacturing company in Bengaluru, said he was hoping for reduced interest rates besides the moratorium on loan repayment. With an annual turnover of ~, Mathew says that he runs two manufacturing units, employing nearly 100 people. But with the losses incurred in the past two months and the bleak sales outlook for the rest of 2020, he sees little chances to keep his factories afloat.

Summary

The Stimulus provides most supportive actions in liquidity & guarantees, and unlike many other major economies, there is not much direct cash support or demand push. Over the medium term, the economy should get a reform boost, but recovery from the COVID19 shock will likely take longer.