Confederation of Indian Industry (CII) has written to the finance ministry urging the government to explore an Emergency Loan Credit Guarantee Scheme (ECLGS) to support the resource starved stressed sectors.
CII has recommended this intervention to assist the stressed segments, primarily in the service sectors like hospitality, tourism aviation and retail, as this would not have any impact on the fiscal deficit this year but will provide the much needed liquidity to these sectors which employ a large number of people. “CII appreciates the revenue constraints faced by the government and its impact on the widening fiscal deficit. This intervention, similar to what has been done for the MSMEs will be a win-win for all,” Mr Chandrajit Banerjee Director General CII said.
The ECLGS, announced in May earlier by the Hon’ble Finance Minister as part of the Atmanirbhar Bharat Package, budgets Rs 3 lakh crore collateral free automatic loans for businesses including MSMEs. The scheme has made disbursals of Rs 1.48 lakh crores against sanctions of Rs 2.03 lakh crores. The scheme which was to end on 31 October has now been extended to 30 November.
It is likely that the scheme will utilise around Rs 2 lakh crores. The unutilized amount of around Rs 1 lakh crores, and an additional Rs 50,000 crores, if need be, could be used to extend support to corporates in the stressed sectors, who were earlier not eligible for the current ECLGS scheme. This will help the sectors tide over the cash crunch and working capital issues.
One of the key challenges faced by the stressed sectors is severe liquidity crunch in the wake of low demand and an ECLGS scheme could help provide interim liquidity support, till demand recovers.
The services sector which contributes 63 per cent to India’s GDP has been affected disproportionally by the pandemic. The sector shrunk by 24.3 per cent in Q1FY21, YoY. The stressed sectors (construction; trade, hotels and transport) contributed a whopping 83.4 per cent to this contraction. Not only has the contraction been severe, the recovery in these sectors is slower than that in manufacturing.
Additionally, many of these sectors are employment intensive. As per industry estimates travel and tourism, civil aviation and retail employ about 9.5 crore people, including direct and indirect employment. Prolonged stress in these employment intensive sectors can lead to a self-reinforcing downward spiral of job losses and demand contraction, endangering the overall economic recovery.
Given the fiscal constraints faced by the Government on one hand limiting it’s capacity for direct support, and the crying need for help from the stressed sectors on the other, a loan guarantee scheme like ECLGS, with cap on interest rates, could help meet some of the needs of the stressed sectors, without any immediate strain on the fiscal position.
7 November 2020