Measures under Atmanirbhar Bharat Abhiyan

Why in news?

The Minister of Finance made a set of announcements under the Atmanirbhar Bharat Abhiyan (Atmanirbhar meaning self-reliant).

What are the welcome measures?

The measures announced will go a long way in lifting the spirits of the two key and troubled sectors:

While for the former, it is an existential crisis, for the latter, it is a liquidity issue.
MSMEs - The massive Rs. 3-lakh crore collateral-free assistance handed out to MSMEs will help them revive their operations.
Extending a sovereign credit guarantee for the complete amount is a welcome move.
This is because banks may otherwise have been reluctant to support troubled borrowers.
Two of the feature that would help boost the equity portion on MSME finances are:
1. the Rs. 20,000 crore partially guaranteed subordinated debt programme
2. the Rs. 50,000 crore fund of funds scheme
NBFCs - NBFCs, housing finance firms and micro finance entities got a much-required liquidity boost.
A Rs. 30,000 crore scheme is announced wherein their debt paper will be fully guaranteed by the government.
This works along with the partial credit guarantee scheme of Rs. 45,000 crore.
With these, the government has broken the logjam wherein banks were unwilling to extend credit despite the RBI’s strong push.
This will largely address the liquidity crisis in the non-banking space for now.
DISCOMS - The liquidity issues of power distribution companies were addressed through a Rs. 90,000 crore infusion.
This will be securitised on their receivables and backed by a State government guarantee.

What are the shortfalls?

The finer details of the debt programme and the funds scheme for MSMEs should be more clear.
The government could have specified the interest cap on the loans without leaving it to individual lenders.
Now each of them has its own rate structure.
Again, the scheme could have been extended until the end of this financial year instead of until October 31, 2020.

What is the overall objective?

The announcements are focused on the liquidity part of the crisis.
The reality is that the government will be called upon to bear the liability of these big numbers only if the economic situation becomes hopeless.
But, hopefully, it may not come to that point.
So, the announcements have in effect addressed the issue of lack of confidence in the credit market.
Notably, liquidity was always there but only for the most credit-worthy of borrowers.
The government has now just given the assurance to lenders and borrowers that it is willing to support their commitments.
This is the signal that MSMEs and their lenders needed and so, overall, the measures are welcoming.

Source: The Hindu