The Rs 1,300 crore package announced by the Government of J&K is the first step in the right direction. After having had stake-holders consultation, the government has done well to address one of the core issues faced by businesses: interest payments. The interest subvention is important for two reasons; first, unlike the RBI package which just postpones the problem in the sense that interest continues to accrue during the moratorium period causing more distress in the long run, this one provides actual relief. Given the reasons for the shutdown, the Government has been fair to bear 5 per cent of the interest for business enterprises. If the average rate of interest is 11 or 12 per cent, now the borrower will only have to pay around 6 to 7 per cent. This is significant. Not only will this measure help businesses, it will also help the J&K Bank.
Even the cut off dates have been done in a fair manner; one cut-off date has been fixed for 31st July, 2019 , i.e. before the August 5th 2019 lock down. The key issue will be the fine print and the implementation. The interest subvention will presumably, and rightly so, apply only to only standard accounts. Much will depend on how the J&K Bank applies it to accounts and how it will treat nominal delays in interest servicing. It would do well if the government spells out the procedural part so that at the branch level there is no scope for discretion. What remains to be seen is how the government will help the informal sector which has no access to formal banking credit for that is a larger part of the business economy of J&K.