12 NOV 2020

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COVID package 3.0: Top-up on stress relief to support recovery

The Finance Minister announced INR 1.19 trillion in relief/stimulus measures today, excluding
INR 1.46 trillion Production Linked Incentive (PLI) scheme announced yesterday for 10 champion sectors.
Rural employment, Urban housing and defense CAPEX saw higher allocation. While, the now successful
MSME credit guarantee scheme has been extended with amendments to include larger businesses in
identified stressed sectors.

New schemes include (1) INR 650bn top-up to fertilizer subsidy bill which should be seen as stress relief for
unpaid dues in the sector, (2) More flexibility to home buyers to negotiate with builders who have unsold
inventory (3) INR 60bn equity infusion in National Infrastructure Investment Fund to leverage and lend for
project finance, (4) INR 30bn equity infusion to EXIM bank so that it can build demand for Indian project
exports, (5) INR 9bn for COVID R&D and finally, (6) Relaxation of bidding terms for EPC tenders and
performance security reduced to 3% from 5-10% (7) Government will bear EPFO contributions of employees
and firms for a period of two years (~12 to 24% of basic depending on firm size) for those who hire
(< INR 15k per month salary) between Oct 2020 to June 2021.

Overall, the government continues to provide targeted stress relief and is introducing measured support for
ongoing demand recovery which is swifter than expected. We’ve been highlighting that the government has
conserved fiscal spending power in 1H FY21 which will help finance some of these measures. The
government (8.6% of GDP) and RBI (6.4% of GDP) have supported the economy through various measures
which should be judged by its effectiveness in reducing stress rather than stimulating demand simply because
lower stress equals faster recovery in current conditions.
zz
Any calamity requires, rescue, relief and rebuilding. Today’s and yesterday’s measures continue to extend
relief while supporting rebuilding efforts such as the PLI scheme, equity infusion into EXIM and NII, and
government subsidizing hiring of junior staff.

On the PLI scheme, the government is building on early success seen in interest for the electronics sector. The
benefit will be provided over 5 years and in a graded manner upon achieving certain sales and production
targets. The idea is to nurture domestic production clusters in areas where India can become a competitive
exporter like pharmaceuticals, auto, processed food, white goods, technical textiles and electronics. And, to
build capacity in aspirational sectors where domestic demand is foreseen like new battery technology, Solar
PVs, specialty steel and telecommunication products. A rough estimate shows that domestic production base
can at the minimum rise by 1-2% of GDP by lowering imports of these products and even higher if India can
grow export market share.

We find that the design of the electronics scheme is narrowly targeted with a committee choosing whom to
provide the benefit to. As a result, the long-term success of the scheme falls quite heavily on the beneficiaries
chosen by the committee/ministry. Moreover, these are like defined benefit plans which can over-time prove
inadequate if the macro environment turns adverse e.g. REER appreciation that follows from public push
towards rural consumption and hence relatively high inflation. Investment in good support infrastructure and
stable macro policies are still crucial for the success of PLI in our view.

We are confident that the future focus will be on executing the ambitious National Infrastructure Investment
plan. The finance minister laid stress on this point while tabling her stimulus/relief measures.

Prithviraj Srinivas Executive Director - Economist

prithviraj.srinivas@axiscap.in 91 22 4325 1108

Axis Capital is available on Bloomberg (AXCP<GO>), Reuters.com, Firstcall.com and Factset.com 01

FOR IMPORTANT DISCLOSURES AND DISCLAIMERS, REFER TO THE END OF THIS MATERIAL
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 12 NOV 2020 Quick Note

ECONOMY

Exhibit 1: Self-Reliant India Plan: Reset and restructuring post COVID-19

Sector (INR billion) Details
Total measures (Nov 11 & 12) 2651
Atmanirbhar Bharat Rozgar Yojana 60 New employees and rehired employees drawing less than INR 15k per month salary
EPF support extension will be covered under EPF support scheme for 2 years where the government pays
12% of basic employee EPFO contribution for firms where staff strength is below
1000. Firms with staff strength more than 1000 govt. will pay both employee and
employer contribution viz. 24% of basic in total. Other conditions are that, new
hiring should happen between 1 Oct 2020 to 30 June 2021.
Extension of ECLGS and Stressed sector Timeline of ECLGS scheme extended to Mar 31 2021 is applicable to (previously
credit guarentee expanded from MSMEs to Mudra loans). The scheme has also been expanded to
include larger firms (up to INR 5bn outstanding as of Feb 2020 and no turnover limit)
in 26 stressed sector identified by Kamath committee along with Health sector are
now eligible for expanded ECLGS. The top up loan will be 5 year loans (1 yr
moratorium + 4 yrs servicing)
Fertilizer subsidy allocation jump 650 Expansion of fertilizer subsidy to cover increased utilization due to strong Kharif
season and strong Rabi expectations.
PM Grarib Rozgar Yojana 100 Informal sector employment through merged activities under umbrella PMGRY which
covers MGNREGA and Gram Sadak Yojana among others had additional outlay of
INR 100 bn
Production Linked Incentive scheme 1460 Production Linked Incentive extended to 10 champion sectors. In total INR 197bn will
extension be spent over 5 years. Further details to be awaited but going by existing schemes
the benefit will be given over time on achieving specific sales and investment targets.
Firms are chosen.
PMAY (Urban) allocation top-up 180 Bump up in allocation from INR 80bn + Additional INR 180bn for urban housing
(INR 260bn total) through fiscal and Extra Budgetary Resources. Will help in setting
up 1.2mn houses and 1.8mn to be completed
Relaxation of bidding terms for projects Performance security reduced to 3% instead of 5-10%; Earnest Money Deposit will
not be required for tenders and instead will be replaced by bid security declaration;
These relaxation till 21 Dec 2021
More flexibility to negotiate with home IT relief for developers and home buyers; Permissible differential between circle rate
builders and agreement value can be now upto 20% (versus 10% earlier); Applicable for
primary sales valued upto INR 20mn. Will give buyers more flexibility to bargain
with builders and reduce stamp duty
EXIM equity infusion 30 INR 30bn to EXIM bank to build Indian project exports business as part of the IDEAS
scheme by providing Line of Credit
NIIF equity infusion 60 INR 60bn equity infusion in NIIF for its debt platform. NIIF will attract more equity
and use to leverage in markets build INR 1.1tn debt book for project financing
Capex top-up 102 Increased allocation in revised budget towards capex in the form of defence
equipment manufacturing, roads, industrial infrastructure, and green energy
Covid Vaccine R&D 9 Allocation to department of Biotechnology to boos research for COVID-19
vaccination. This does not cover costs and logistics related to eventual expenses
concerned with distribution of the vaccine.
Source: PIB

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 12 NOV 2020 Quick Note

ECONOMY

Exhibit 2: Production linked Incentive scheme so far (Existing + New)

Fiscal outlay over 5
10 Champion sectors Specific segments years (INR bn)
Advance Chemistry Cell (ACC) ACC Batteries 18
Battery
Electronic/Technology Products Semiconductor Fab 46
Display Fab
Laptop/ Notebooks
Servers
IoT Devices
Specified Computer Hardware
Existing PLI: Mobile Manufacturing and Specified Electronic Components
Automobiles & Auto Automobile and Auto Components 57
Components
Pharmaceuticals drugs Category 1 25
Biopharmaceuticals
Complex generic drugs
Patented drugs or drugs nearing patent expiry
Cell based or gene therapy products
Orphan drugs
Special empty capsules
vii. Complex excipients

Category 2
Active Pharma Ingredients (APIs) /Key Starting Materials (KSMs) and /Drug
Intermediaries (Dls)

Category 3
Repurposed Drugs
Auto-immune drugs, Anti-cancer drugs, Anti diabetic drugs, Anti Infective drugs,
Cardiovascular drugs, Psychotropic drugs and Anti-Retroviral drugs
In-vitro Diagnostic Devices (IVDs)
Phyto pharmaceuticals
Other drugs not manufactured in India
Other drugs as approved

Existing: Critical Key Starting materials/Drug Intermediaries and Active Pharmaceutical

Ingredients
Manufacturing of Medical Devices
Telecom & Networking Core Transmission Equipment 12
Products 4G/5G, Next Generation Radio Access Network and Wireless Equipment
Access & Customer Premises Equipment (CPE), Internet of Things (IoT) Access Devices
and Other Wireles sEquipment
Enterprise equipment: Switches, Router
Textile Products: MMF segment Man-Made Fiber Segment 11
and technical textiles Technical Textiles
Food Products Ready to Eat / Ready to Cook (RTE/ RTC) 11
Marine Products
Fruits & Vegetables
Honey
Desi Ghee
Mozzarella Cheese
Organic eggs and poultry meat
High Efficiency Solar PV Solar PVs 5
Modules
White Goods (ACs & LED) Air conditioners 6
LED
Specialty Steel Coated Steel 6
High Strength Steel
Steel Rails
Ally Steel Bars & Rods
Total 197

Source: PIB

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 12 NOV 2020 Quick Note

ECONOMY

Exhibit 3: Breakdown of COVID economic package

INR trillion % of GDP
Total RBI measures (FM's estimate as per actual) 12.71 6.4%

FM package (27 Mar) 1.70 0.9%

FM package ( emergency health response and tax concessions) 0.23 0.1%
FM package (13 May) 5.95 3.0%
- Credit guarantee + liquidity infusion 5.35 2.7%
- TDS relaxation 0.50 0.3%
- EPF 0.09 0.0%
FM package (14 May) 3.10 1.6%
- Migrants, micro loans, street vendors, tribal 0.10 0.1%
- Nabard & Kissan credit scheme extension 2.30 1.2%
- Subsidy extension for middle class housing 0.70 0.4%
FM package (15 May) 1.50 0.8%
- Agri, food procession and fisheries infra fund 1.45 0.7%
- Herbal cultivation, Bee keeping, operation green 0.05 0.0%
FM package (16 & 17 May) 0.48 0.2%
- VGF for social infrastructure 0.08 0.0%
- MGNREGA 0.40 0.2%
FM package (8 July) 0.83 0.4%
- Extension of food support scheme 0.73 0.4%
FM package (12 October) 0.73 0.4%
- LTC rules relaxed to support consumption 0.28 0.1%
- Festive cash advance 0.08 0.0%
- Center capex top-up 0.25 0.1%
- State capex advance 0.12 0.1%
FM package (12 November) 2.65 1.3%
- Production Linked Incentive extension (10 champion setors) 1.46 0.7%
- Fertilizer subsidy increase 0.65 0.3%
- Center top-up for capex, housing, rural and urban jobs 0.45 0.2%
- Equity infusion into NIIF & EXIM 0.09 0.0%

Total FM measures so far 17.17 8.6%

Total measures so far 29.88 14.9%

Source: Ministry of Finance, Axis Capital

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 12 NOV 2020 Quick Note

ECONOMY

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 12 NOV 2020 Quick Note

ECONOMY

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Axis House, C2, Wadia International Centre, P.B Marg, Worli, Mumbai 400 025, India.
Tel:- Board +91-22 4325 2525; Dealing +91-22 2438 8861-69;
Fax:- Research +91-22 4325 1100; Dealing +91-22 4325 3500

DEFINITION OF RATINGS
Ratings Expected absolute returns over 12 months
BUY More than 15%
ADD Between 5% to 15%
REDUCE Between 5% to -10 %
SELL More than -10%

Research Disclosure - NOTICE TO US INVESTORS:

This report was prepared, approved, published and distributed by Axis Capital Limited, a company located outside of the United States (a “non-US Company”). This
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