May 14, 2020
By now the interested Indians has got the presentation in their hand. The much-awaited one, at least after Tuesday’s 8 PM speech of the honourable Prime Minister has been announced by the Finance Minister. While experts are now busy analyzing the short and long impacts of the package of 20 lakhs Crore rupees on Indian Economy, let’s have a quick glance over the key points that are going to be important for the Construction industry.
A Big Kitty for the MSMEs
The Govt. has announced a big benefit bag for the MSMEs. The most notable point is the redefinition of MSMEs. The manufacturing and services classes are now being taken together in terms of the limit of investment, whose upper limit has been now increased manifold. Although henceforth the annual turnover will be a criterion, the same wouldn’t make much of a difference.
The kitty for the MSME has a lot of benefits which certainly proves their importance in the economy of the country as well as to the incumbent Government. Collateral free automatic loans of 3 Lakhs Crores without guarantee, interest to be capped, tenure of four years and no-principal-repayment for one year. In addition, 20000 crores subordinate debt for stressed MSMEs, 50000 crores equity infusion, plan to promote e-market linkage to act as a replacement to trade fairs and exhibitions and Govt.’s effort for settling their dues are the prominent benefits in the announcement.
While the above will help the MSMEs financially, the disallowing of global tenders up to 200 crores will increase the business scope for them in the country. Today or tomorrow, most of the tread-dependent countries are going to adapt measures like this to help indigenous organizations to boost their individual economy in the post-COVID scenario. India is leading the trend, of course.
The Big Players’ Book
Not everything is for only the MSMEs. All Contractors are going to have the extension (in project completion and intermediate milestones) without cost in Central Government projects as per this announcement. For time being, this decision is limited to Central Govt.
clients and PPP contracts but it is well-expected that the states will eventually adapt the same model. Big private clients’ move in this regard would be a point of observation.
Although, without some concrete decisions on financial benefits the contractors will not be taken out of the dark with dry time extension. The present announcement of release of bank guarantees is a positive thing which will increase the available limit of cash for the contractors, but part release of retention monies and granting additional advances (adjustable with future payments in a course of six months to one year, depending on the balance tenure of contracts) would have been a good boost for the life of contractors.
The announcement of the honourable Finance Minister has a lot in easing out the statutory and compliance matters. Last date of return filing of Income Tax and GST has been extended till 30th June which was quite expected under the ongoing situation. The tendency of private clients towards delay in release of payment towards the contractors (which is of course, due to business loss at their part, too) has already put the contractors in a cash-crisis. The situation is not much different for the Government projects, too, as the redirection of major fund towards health and other welfare acts due to urgency created by COVID outbreak has led to a bad situation. This decision will help in easing the cash-flow of business of all scales, construction companies are no exception and they will get a temporary relief.
The ‘Real’ Things
Real estate projects under RERA are going to get timeline benefits of six months. This will be oxygen to the builders, although delivery of the home-buyers will be delayed for that period. However, the announcement is silent on the financial benefits to the home-buyers. Any additional benefits to the builders must be passed on to the home-buyers also. Govt. should come forward to devise a formula to come to a decision favorable for all.
Reserve Bank in Help
The Reserve Bank’s decision of reduction of Cash Reserve Ration (CRR) will increase the liquidity in the market (13.7 Million Crores in this case) which shall make the banks more enthusiast to grant loans with easier conditions and at lesser interest rates. Accompanied by easing of working capital financing by reducing margin it will definitely be a boost for the industry.