"G K Shrinivas is a Chartered Accountant by profession, also a qualified lawyer and a Certified Information Systems Auditor(CISA). He is also a Forensic Auditor certified by The Institute of Chartered Accountants of India. He is an Alumnus of IIM-A and completed an Executive Education course on Management and Finance. Has rich experience in the fields of International taxation, US Taxation, Internal audits, Double taxation advisory and Transfer Pricing of Income Tax Act."
Economic bailout packages – India vs USA
The Coronavirus which is spreading at an alarming speed has now infected millions across the world and more than 10 percent of the US population even as I write this, showing no signs of slowing down. India is currently in the third position of the list of countries affected by COVID with cases surging every day. The pandemic which first started in China has now affected more than 188 countries. Governments across the globe have resorted to various strategies to tackle and control the virus.
There has been a high economic cost as well. This may primarily be attributed to various reasons such as job losses, reduced demand for products thereby causing a huge disruption in economies, globally. A loss to the tune of a whopping $9 Trillion is what has been estimated by different agencies because of COVID disruption.
Assessing the economic impact of the COVID situation, governments are providing tailor made funding packages to aid businesses and individuals and tide over these difficult times. In this article, we discuss the relief measures provided by the Indian government in comparison with what has been provided by Uncle Sam.
The Indian government announced a stimulus package to the tune of ₹20 Lakh Crore - almost 10 percent of the nation’s GDP. The details of this stimulus were provided over a period of 5 days encompassing a series of measure aimed making India tmanirbhar” (Self-reliant). The reforms announced were far reaching and cover a wide gamut of activities from Agriculture to space research. Much before the announcement made by the Indian government, the US had also made an announcement to provide a relief package of $3 trillion - the largest stimulus package till date.
Special packages were provided to the Small and Medium sized businesses both by India and the US. In India, Micro, Small and Medium Enterprises (MSMEs) contribute to around 30 percent of the country’s economy. The number of Small and Medium businesses is a much higher percentage in the US. This cannot be compared directly as each nation has a different method under which a business maybe classified as a small and medium business. India uses the investment in plant & machinery and the turnover criteria to ascertain whether an entity is a small and medium sized entity. US determines a business to be a small and medium sized entity depending upon the number of employees.
To help the Small and Medium entities overcome this difficult phase, the Indian government allocated ₹3 Lakh crore as a part of the Emergency Credit Line Guarantee Scheme (ECLGS). Businesses which require additional fund to sail through this difficult period may withdraw an additional 20% for which a guarantee would be provided by the government. So far, about ₹1.14 Lakh crore has been disbursed under this scheme. While this is not an elixir to all the problems faced by MSMEs, this will keep them afloat.
The US government provided various loan schemes to businesses to meet their immediate needs such as payroll, working capital etc., with an option to waive them off on satisfaction of certain conditions. To ensure that the employees are maintained on payroll and not fired, the Payroll Protection Program (PPP) was introduced. The premise of this program is very simple. The government will lend up to 2.5 times the average cost of company’s monthly payroll. The employer has to use at least 60% of the amount towards payroll and the balance can be used for rent, mortgage, utilities etc., If the conditions are adhere to, the loan becomes a forgivable loan – meaning the loan does not have to be repaid. And further, the forgiveness will not be taxed as income. There are various other schemes such as SBA Economic Injury Disaster Loan (EIDL), low interest loans for small and medium sized businesses which were extended by the government as a part of the relief package.
Care was - taken not just to ensure that businesses are put back on track, but also that the welfare of people is taken care of directly. The US government provided a relief check of $1,200 to all adults and $500 per child for individuals in specific income groups. The income groups for this calculation are based upon 2018 or 2019 tax filing. Apart from this, unemployment benefits are also being provided for a period of up to 39 weeks. In a rare move, unemployment benefits are now being provided to freelancers, uber drivers, artists and other self-employed workers who would not otherwise qualify for unemployment benefit under normal circumstances. The Indian government on the other hand, did not put money in the hands of the individuals directly but agreed to provide free grains to the needy till November of this year.
The governments have taken into cognizance the inability of individuals and businesses to comply with various filings and have extended the various deadlines. In India, for an individual, the due date for filing which was July 31st earlier has been extended to November 30th, 2020. Similarly, in the US the due date of filing of returns which was April 15th has been automatically extended to July 15th, 2020, beyond which an extension can further be sought up to October 15th, 2020.
With masks and sanitizers being the order of the day, lockdowns are being lifted as the new normal dawns upon us with the economy yet to show signs of recovery. The governments are taking various steps to ensure that the economy gets back on track at the earliest. While the Indian government has taken reformative steps to ensure that the money reaches the hands of the people, the US government has allowed for a more direct approach. The plan for the release of the Second COVID Stimulus Bill in the US is underway. This may target and focus on job growth. Only time will tell.