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Explaining the effect of 20 lakh crore package on government, banks and people

  • Jayant gattani | Updated: May 23, 2020, 12:44 p.m.

In these tough times, countries around the world are trying their best to support their economy. The prime minister of India, Mr. Narendra Modi also announced a big stimulus for the country. Let’s understand the math of the same.


The said stimulus of 20 lakh crores or 10% of the GDP had many expectations but is missing the expectations on most of the fronts. For some the package is a hit, for some it is a disappointment. Let us dig deep in the package.

For our easy understanding we will break the packages in 3 parts. Announcements benefiting people, those benefiting banks and other financial institutions and those benefiting businesses.

Announcement for people

The government has announced Rs. 6.43 lakhs crores towards those schemes that benefit people. Out of those schemes there will be some costs which will be borne directly by the government.

Cost incurred by the government

1.     Rs. 1.70 lakhs crores under PM Garib Kalyan Yojna under which benefits 5 kg wheat per month and Rs. 500 will be transferred to Jan Dhan accounts etc. will be incurred.

2.     Direct transfer of Rs.2000 to the account of farmers will be made for which the government will incur Rs. 0.17 lakhs crores and Rs. 0.30 lakhs crores towards emergency funds to farmers.

3.     Rs 0.15 lakhs crores is allocated towards Emergency health response to meet COVID cost. 

4.     Rs. 0.14 lakhs crores towards support to migrant labo.

5.     Rs. 0.05 lakhs crores towards support to street vendors.

6.     Rs. 0.06 lakhs crores towards CAMPA funds.

7.     Rs. 0.70 lakhs crores towards housing loan interest subsidy.

Cost not incurred by government

1.     Rs 2.25 lakhs crores towards the Kisan card loan.

2.     Rs. 0.86 lakhs crores towards loan to farmers.

These will not be incurred by the government but will be provided by banks.

Also, government has announced Rs.0.04 lakhs crores towards rural infrastructure.

Announcement for banks and other financial institutions

    Cost incurred by the government

1.     Rs. 1.30 lakhs crores towards Special Refinance facility and Special Liquidity Facility (SLF).

2.     Rs. 0.45 lakhs crores towards partial credit guarantee.

    Cost not incurred by government

1.     Rs. 1.37 lakhs crores towards reduction in cash reserve ratio (CRR).

2.     Rs. 2.87 lakhs crores towards Targeted long-term Repo operations.

3.     Rs. 1.26 lakhs crores towards loan to DISCOMs (Rs.0.90 lakhs crores), loan for agricultural entities working capital (Rs.0.06 lakhs crores) and NABARD refinancing (Rs. 0.29 lakh crores)

Announcement for businesses

    Cost incurred by government

1.     Rs. 0.02 lakh crores towards EPF Contribution paid by the Government for companies having up to 100 employees, 90% drawing salary up to Rs.15,000 per month.

2.     Rs. 3 lakh crores towards Automatic Collateral Free Loan to business. Interest subsidy on the same will be borne by the government.

3.     Rs.0.04 lakhs crores towards Subordinate Debt to MSME.

4.     Rs.0.01 lakhs crores towards MUDRA Loan (Interest subvention).

Cost not incurred by government

1.     Rs. 0.18 lakh crores towards Income Tax Refunds.

2.     Rs. 0.50 lakh crores towards Equity infusion in businesses. Government will take share in the company. It is an investment and not cost to government.

3.     Rs. 0.50 lakhs crores towards TDS rate reduction.

On the basis of the complete package, government will incur around Rs. 3.20 lakhs crores towards the economic package. Remaining amount are either loans or other liquidity measures taken by the government which will show their impact in the long term. The largest chunk, worth eight lakh croresare part of various initiatives taken by the Reserve Bank of India in the months of February, March and April, whose sole goal was to inject liquidity in the system.

The markets have also not responded well towards the package contrary to the markets of other countries. Also, there are few other announcements in the package which have no financial impact to government. Government has tried to set things right but it seems it was not enough.

Jayant Gattani is an established Chartered accountant and has given various views on ongoing economic and financial situation in the country.

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