BACKGROUND

Post the announcement of a Rs. 20 lakh crore stimulus package in his nation-wide address on May 12, 2020 by Prime Minister Narendra Modi , the Ministry of Finance held a series of press conferences from 13^th  to 16^th May to announce measures supporting the Micro, Small and Medium Enterprises and Non-Banking Financial Companies, reforms specifically for the ‘base of the pyramid’ sections of the society such as street vendors, migrant workers, farmers, etc., the agricultural and agri-allied sectors and structural policy to fast track investments, raise industrial production and generate employment opportunities.

The fifth tranche of the “Atmanirbhar” package, announced on 17^th May 2020, entailed 7 points covering creation of employment in rural areas under MGNREGS, policy reforms in the field of health and education, promoting ease of doing business and additional resources for state governments.

DAY #5 ANNOUNCEMENTS: SUMMARY OF POLICY REFORMS

Some of the key announcements which are relevant for the sectors we operate are as below:

1. Additional budget of INR 40,000 crore towards the MGNREGA scheme which takes the total allocation to the scheme to INR 01 lakh crore – As per government estimate, the additional budget will generate nearly 300 crore man days in total. In our earlier notes, we had highlighted that income from daily wages is around 34% for the agricultural households and 54% for the non-agricultural households. The additional allocation will further add cushion to the cashflows and boost rural economy which is a positive for the microfinance sector.

2. Reforms in the health sector – The proposal to increase investment in public health infrastructure extending to the block level is a welcome step. As per NAFIS, 2016-17, one in every five rural households faced distress situation due to medical exigency in the last 10 years. Almost 80% of them had to borrow money from relatives or informal sector to cope with the loss. The government thrust to strengthen the public health infrastructure would therefore prevent rural households from facing such distress situation and entering a debt trap.

3. Increased borrowing limit for the state government – The government has allowed states to borrow additionally up to 2% of GSDP over and above the earlier cap of 3% of GSDP. It is noteworthy that the government has linked the spending from the additional borrowings (above 5% of GSDP) in equal tranches of 0.25% of GSDP towards one nation-one ration scheme, ease of doing business, electricity distribution companies and urban local bodies. We expect the state government’s targeted expenditure towards ease of doing business will help the micro-entrepreneurs (including those in the agricultural sectors), where the government has proposed de-regulation under the amendment of Essential Commodity Act. It will catalyse the primary agricultural cooperatives and the co-operative banks, who are regulated by the state governments, to promote the agriculture sector reforms.

To summarize, we believe the Government stimulus announcements would provide relief to the economically vulnerable population like the daily wage labourers, migrants and farmers.  At the same time, the policy reforms for promotion of local manufacturing and de-regulation of the agricultural commodities will pave the way for unlocking business opportunities in the rural India. We continue to be a catalyst towards the government ambition to empower the vulnerable section of the society by channelizing debt funding to microfinance, small business & consumer finance, agriculture finance and vehicle finance segment.