Stimulus 4.0 might come before Diwali, focus on jobs and stressed sectors

The Central government is likely to unveil another stimulus package focusing on stressed sectors, middle-income groups in urban and rural areas, and employment generation before Diwali, said three key officials in the know. The measures are essential to bolster the pandemic-hit economy, they said.

A Reuters report said the government was planning to announce a fresh round of stimulus of about $20 billion this week.

Unlike the first two stimulus packages, this time the focus would be on boosting demand. The third package, too, tried to create demand through the leave travel concession (LTC) route.

Sources said after several rounds of discussion within ministries, the Centre has ruled out direct cash support.

Another round of infusion in the form of direct cash has been discussed extensively but it was observed the measure was not beneficial, they said.

Citing the balance in Jan-Dhan accounts and overall bank deposits, it was noticed that these were almost constant since April, which indicates that people’s spending has come down drastically, said a government source privy to the discussion.

As of November 4, the deposits under the Pradhan Mantri Jan-Dhan Yojana stood at Rs 1.31 trillion. The deposits in April were Rs 1.19 trillion, indicating limited transitions in the past seven months.

The government is learnt to have explored other options to help these income groups. It had proposed good and services tax (GST) rates be cut on consumer durables, but the proposal was turned down by the GST Council. So, the fresh stimulus measure could be on providing these income groups subsidised credit.

Stressed services sectors will get emergency credit without any collateral, and the government will act as guarantor. The government is preparing provisions for collateral-free emergency credit lines for 12-13 stressed sectors from those identified by the K V Kamath panel.

These sectors include aviation, hospitality (hotels and tourism), auto components, and textiles.

The Reserve Bank-appointed expert committee, headed by former chief of New Development Bank K V Kamath, has outlined parameters to deal with 26 sectors buffeted by Covid-19. A rough estimate says Rs 4-4.5 trillion of loans would need to be recast even after taking into consideration economic recovery in the coming months.

Principal Economic Advisor Sanjeev Sanyal had last month told Business Standard that the government was willing to provide some more support.

The government is learnt to be preparing a special scheme in which it will subsidise, with caveats, employee provident fund (EPF) contributions for new companies and even those companies hiring employees. For instance, there could be subsidy if the employee cost to the company is up to Rs 15,000 per head. Also there is a certain number of employees who should be there in the company to avail of this facility. However, these measures will be announced without additional borrowing.

The finance ministry has maintained there will be no change in the borrowing target of Rs 12 trillion even in case of additional measures.