The complete 21-day COVID-19 shutdown of most economic activity has created new roadblocks, causing severe disruptive impact on both demand and supply side elements across sectors. The cost of the lockdown is pegged at around $120 billion (approximately ₹9 lakh crore) or 4% of the GDP.
Further, 90% of India’s workforce is employed in the unorganised sector and this lockdown will effectively put over 45 million migrants living off daily earnings out of work. Sectors like construction projects, mobility services, housekeeping and other informal sector employment will come to a sudden halt. The manufacturing sector faces a triple challenge. First, there are going to be serious supply chain disruptions not just when dealing with foreign parties, but also the domestic industry. Second, sectors like automobiles, pharmaceuticals, electronics, chemical products etc., are facing an imminent raw material and component shortage.
Third, the shutdown and resulting loss of revenue is certain to cause a number of bankruptcies and closures, especially in the MSME sector with corresponding disruption to supply chains.
On the demand side, several industries would get impacted starting with the consumer durable goods and will cascade to other intermediate goods and basic goods. The government was the major spender on investment in the infrastructure sector, which will slowdown now with resources and attention being diverted.
Hence, industries like steel and cement, which did well, last year, will stumble.
The services sector will see a fall in demand. These include aviation, hotels, restaurants, tourism, retail malls etc. The real estate sector, which was already in deep trouble, could well slide even more,in the medium term at least.
Even 10-20% job losses among its 7.3 million employees in restaurants across the country would mean up to 15 lakh unemployed. Any delay in addressing the economic consequences will lead to massive job losses.
SICCI suggests the following: the Reserve Bank of India has to address two problems: Transmission on rate cuts has been inadequate.
Second, rate cuts by themselves are unlikely to stimulate demand as the primary cause for demand contraction will be on account of consumer confidence being low. Though the RBI has provided some relief to industries, it is inadequate considering the gravity of the situation. SICCI feels that only the stronger firms in any sector can have the capacity to keep salary payments going, in the absence of any revenue earnings.
Firms cannot be expected to drain their already stretched cash-flows. To tide over the present crisis, banks should give three months’ salary as overdraft facility to the employees of companies which can be escrowed to the companies with a nominal rate of interest not exceeding 3%.
The same could be recovered from companies over a period of three months, six months after commencement of production, post the present crisis. On electronic component and semi-conductor industry, the impact will be felt in the areas of logistics, packaging and testing. A special package should be designed for this highly skilled industry.
In the case of contract workers, many casual and informal workers are directly or indirectly dependent on the survival of small and medium enterprises for jobs.
The government could lend support through tax holidays and zero-interest loans for three months. In the case of services sector, the government should consider contributing the employer’s share of PF for all employees earning less than ₹20,000 per month and ESI contribution for all employees earning below the statutory threshold level of ₹21,000 per month, for a period of 12 months. For firms that have difficulties in managing their cash flows, the government should extend a government-backed loan guarantee, on the basis of which firms can raise loans on preferential terms to the extent of 25% of their existing working capital arrangements. All rating agencies may be advised to suspend rating reviews till the lockdown is over. The RBI needs to come up with a special window to provide liquidity to NBFCs and microfinance institutions in this period. The government should ensure that all refunds across tax legislation — up to75% should be given without any verification and any wrongful claim can be recovered without any interest.
Private sector hospitals need to be encouraged to provide specific number of isolation wards to the poor and extended financial assistance on soft terms.
Export incentive schemes like Sec. 10AA for SEZ units under the I-T Act should be extended for one more year – i.e up to March 31, 2021. Further, the recent Import Export Policy should be extended for one more year.
In the absence of new Export/Import Policy, all export incentives viz MEIS,SCIS, EPCG license etc. should be extended for one more year. All charges including, port charges, penal charges, demurrages should be waived. Further, all agencies viz ports, air cargo terminals, all custodians of cargo and all shipping lines have to waive penal charges.
Fixed charges levied may be waived and the industry may be charged only on the actual consumption of electricity. Immediate refund of IGST will help exporter in dealing with liquidity issues.
In order to have Business Continuity Plans where the economy is better prepared for a work from home mode, the government should halve GST rates on all laptops, routers, cloud services, dongles and such other equipment and services.
All companies should be asked to devote their CSR funds exclusively towards creation of clean quarantine centres, and addition of hospital beds, ventilators and PPEs, besides investing in testing and other facilities aimed at preventing the spread of the virus.
High Networth Individuals should be encouraged to do likewise. Additional tax concessions may be looked at for this sector. Women’s Self-Help Groups and the informal sector should be asked to produce masks, hand sanitisers, among others in a big way. Banks should be asked fund these activities and State governments should arrange for the marketing of these products to their local primary health centres.
(The author is President, Southern India Chamber of Commerce & Industry)