Blog Description

Impact Analysis and Insights on India’s Biggest Economic Stimulus Package

India Economic Stimulus Package

Consulting | May, 2020

On 13th May, Finance Minister of India announced economic relief package for reviving the country’s economy from the impact of COVID-19 pandemic and countrywide lockdown announced on 22nd March, 2020. The economic stimulus package announced by the government is based on five pillars: Demand, Vibrant Demography, Infrastructure, Economy And System; and the quantum of the economic package is equivalent to INR 20 lakh crore (USD 266 billion), which is about 10 percent of the country’s Gross Domestic Product.

India has the 12th largest number of confirmed cases of COVID-19 and with the announcement, the country is set to have the fifth largest COVID-19 package among all the leading global economies, in terms of share of GDP. Right now, Japan leads the list with an economic stimulus package (USD 1.1 trillion) standing at 21.2 percent of the county’s GDP. United States, one of the worst-hit COVID-19 countries, ranks second in the list through allocation of 13.3 percent of the GDP towards economic recovery package, which amount to USD 2.7 trillion, in three phases.      

The country plans to increase its focus on ensuring progress amidst and post SARS COV-2 pandemic through Self-Reliant India Movement. Increase in production of N95 masks and PPE kits from zero to two hundred thousand per day demonstrates the country’s potential for turning crisis into opportunity. Consequently, the government in the current scenario is focusing on Self Reliance (Atmanirbhar Bharat) and the special economic package will provide the needed boost for achieving the same.

The first day of announcement, 13th May, 2020, included a series of press briefings related to economic relief package. The 20 lakh crore sum includes RBI’s liquidation worth close to INR 8.04 lakh crore and INR 1.7 lakh crore relief package under Gareeb Kalyan Yojana, which was announced by the government on March 26, 2020 . 

Key Pointers of the Economic Stimulus Package Announced on 13th May 2020:

The package aims at addressing issues related to ease of doing business and promoting local brands and MSMEs to increase their competitiveness in the global marketplace. Finance Minister announced various measures, of which, six are for MSMEs, two are for EPF, two for NBFCs and MFIs, one for DISCOMs, one associated with contractors, one related to real estate and remaining are tax measures.

Revival of MSME Sector:

  • Collateral free loans up to a total of 3 lakh crore will be made available for the small and medium sized enterprises to kick start their businesses. These loans will be made available to the MSME units, which have INR 25 crore outstanding loan payments and turnover of up to INR 100 crore. The scheme can be availed till 31st October, 2020 and the loan will have a moratorium and tenure of 12 months and 4 years, respectively. This measure is expected to benefit over 45 lakh MSMEs. 
  • For stressed and non-performing MSMEs, subordinate debt worth INR 20,000 crore has been announced, which will benefit 2 lakh units.
  • For MSMEs, INR 50,000 crore ‘Funds of Funds’ will be created so that enterprises or businesses can expand their capacity, size and get listed on the market they choose.

Distinction between manufacturing and services sector MSMEs has been eliminated. Investment limit for MSMEs will be extended and additional criteria of turnover to be introduced. Enterprises with investment up to INR 1 crore and turnover up to INR 5 crore will be termed as micro units. Small units under the new definition are the ones with investment up to INRR 10 crore and turnover up to INR 50 crore, while for medium units, limit of investment is up to INR 20 crore and turnover up to INR 100 crore. 

Below mentioned figure highlights existing and revised definition of MSMEs.

  • Global tenders will be disallowed up to INR 200 crore. This will help MSMEs to increase their business and will be a step towards Self-Reliant India and will support ‘Make in India’ as well.
  • All the MSME receivables from government and PSUs to be cleared in the next 45 days.

Six new measures related to MSME sectors are aimed at presenting opportunities for small, micro and medium sized businesses to grow. Low threshold in MSME definition resulted in fear among enterprises as they do not want to be barred from the benefits. MSME definition revision was a pending decision and its announcement in the relief economic package will allow them to grow while availing the benefits of an MSME.

For Employees

  • The government has extended support to employee provident fund for next three months till August 2020, which was earlier supported till May, 2020. This will be applicable for firms with 100 staff and employees earning less than 15,000 per month. By this government step, around 3.6 lakh establishments will be benefited, and this move will provide INR 2500 crore liquidity.
  • For the next three months till August 2020, employers and employee need to pay only 10% towards their PF instead of 12%, amounting to a liquidity support worth INR 6,750 crore.

The steps taken by government related to PF will help to increase the take-home salary for both, employee and employer, which will result in increasing purchasing power. However, this move will not be applicable to government firms.



  • For non-banking financial companies, government will launch an INR 30,000 crore special liquidity scheme. These NBFCs will be investing in the MSMEs and will be fully guaranteed by the government of India.
  • The government will launch another scheme i.e. Partial Credit Guarantee Scheme 2.0 worth INR 45,000 crore for NBFCs, in which, first 20 percent loss will be borne by  the government.
  • The government has also announced Rs 90,000 crore liquidity injection for power distribution companies (DISCOMs). This is done for clearing the dues of power generation companies and the liquidity will be infused by Power Finance Corporation and Rural Electrification Corporation.

Other Measures

  • The Finance Ministry announced extension of up to 6 months for contractors by all Central agencies like Railways, Ministry of Road Transport and Highways, Central Public Works departments without any additional cost. All this has been done to facilitate greater liquidity. Also, government agencies will partially release bank guarantees to the extent of the completed contract, and hence, cash flow will improve.
  • Government has allowed use of Force Majeure clause under real estate registration act, which will free both the parties and allow them to extend the completion/registration date by six months.
  • Government will infuse INR 50,000 crore liquidity by reducing TDS and TCS rates by 25%. This reduction will come into effect from May 14, 2020 and will last till March 31, 2021.
  • Due dates of all the IT Return filings have been extended from July 31 to November 30. Dates of assessments getting barred on September 30, 2020 has now been extended  to December 31, 2020.

Relevant blogs

How Can Companies Enter Vietnam09 Dec, 2022

Vietnam is one of the fastest growing economies in the world and third-largest market in South Asia. After ...

Top 5 Trends in Anti-Counterfeit Packaging Solutions28 Nov, 2022

According to trade data trends, the number of counterfeit products could soon rise to USD3 trillion by the ...

How can Companies Enter Germany?17 Nov, 2022

As the 5th largest economy in the world with an innovative business culture and manufacturing dominance, ...

Is the Job Market Moving Towards the “Great Layoff Phase”?16 Jun, 2022

The Indian startup ecosystem has witnessed many changes with evolving technological innovations, the influx ...

How Would the Special Taskforce Promote AGVC Sector in India?01 Mar, 2022

The Union Budget 2022 proposes setting up a task force for promoting animation, visual effects, gaming, and ...

Impact of Russia-Ukraine Conflict on the Global Economy25 Feb, 2022

The stoking fears of Russia invading Ukraine, escalated by the build-up of tens of thousands of Russian ...


Request your query

Letters are not case-sensitive