Tax Relief for Home Buyers, Credit for MSMEs and Employment Boost Part of FM's Third Stimulus Package

FM Nirmala Sitharaman announced yet another fiscal stimulus on the same day when the Reserve Bank of India said that India has most likely entered its first ever recession

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On the day when the Reserve Bank of India said that India has most likely entered its first ever recession, the Finance Minister Nirmala Sitharaman announced yet another stimulus package to boost economic growth amidst the Covid-19 pandemic.


A team of economists, which includes the Reserve Bank of India's deputy governor Michael Patra, in the central bank's first ever published "nowcast' estimated that the GDP contracted 8.6 per cent in the Q2. The RBI had estimated a contraction of about 24 per cent in April-June quarter.

"India has entered a technical recession in the first half of 2020-21 for the first time in its history," the authors wrote in the "nowcast'. Nowcasting is the prediction of the past and the future state of the economy based on economic indicators.

At the same time, FM Sitharaman in her press conference today indicated that the worst is behind us as the economy is showing strong signs of recovery after Covid-19 led lockdowns.

Presenting growth in economic activities, she said composite purchasing managers index (PMI) rose to 58.9 per cent in October versus 54.6 per cent in the previous month and energy consumption growth trended higher in October at 12 per cent year-on-year. Daily railway freight tonnage grew by an average 20 per cent year-on-year versus 12 per cent, she said adding markets are at record high and India's foreign reserves has reached USD 560 billion.

To boost the economic recovery after the strict Covid-19 led lockdowns, FM Sitharaman made 12 key announcements under Atma Nirbhar 3.0.

Employment Boost

Under the PM Garib Kalyan Rozgar Yojana, an additional INR 10,000 crore will be provided for the current financial year to boost rural employment.

This scheme is targeted towards migrant labourers who returned to their native places post a series of countrywide lockdowns were announced earlier this year.

Atmanirbhar Bharat Rozgar Yojana is another scheme that aims to incentivise creation of new employment.

Under this scheme, every EPFO-registered establishment, if they take new employees and those who lost jobs between March 1 and September 30, 2020, will benefit.

It comes to effect retrospectively from Oct 1, 2020 and all the beneficiaries will be covered for the next two years.

This benefit will apply to those earning monthly wages less than INR 15,000 and establishments registered under the EPFO have to add at least two more employees for firms with less than 50 employees and minimum five employees for firms with over 50 employees to qualify.

Collateral-free Credit

The Credit Liquidity Guarantee scheme of INR 3 lakh crore announced earlier has been further extended to March 31, 2021.

It offers collateral-free working capital term loans.

FM Sitharaman said the government is launching a credit guarantee scheme for 26 stressed sectors as identified by the Kamath Committee plus health care sector. This will have one year moratorium and four years of repayment.

This scheme would be extended to credit outstanding of INR 50 crore to INR 500 crore.

Income Tax Relief for Developers and Home Buyers

The current differential of 10 per cent between the circle rate and the agreement value will be increased to 20 per cent till June 30, 2021 for only primary sales.

This applies to residential units of value upto INR 2 crore.

"We expect a lot of clearance of inventory and people will be able to pay less as the differential gap will be reduced. This will help the middle class that wants to buy when the housing sector is sitting on inventories," FM Sitharaman said.

The total stimulus announced so far, including Atmanirbhar 3.0 is estimated to be worth INR 2,65,080 crore.