Covid-hit industry needs policy tonic (The demand contraction needs deeper support)

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 Covid-hit industry needs policy tonic (The demand contraction needs deeper support)

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Read more on - Polity | Economy | Schemes | S&T | Environment

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• Cost of the lockdown: The COVID-19 lockdown in India may cost upto $120 billion, or 4% of India's GDP (= Rs.9 trillion). Also, the GDP growth rate will drop substantially.
• Economic fallout: The world will fall into a recession, with India not remaining decoupled.

1. Since 90% of India's workforce is in informal sector, they will be hit hard.
2. More than 4.5 crore migrant workers will lose their daily earnings.
3. Some sectors will suddenly come to a halt – construction, mobility, housekeeping, etc.

• Challenges for mfg. sector: Threefold problem exists – 

1. Supply chain distortions, 
2. Raw material and component shortage, and 
3. Revenue and cash shortage leading to bankruptcies and closures.

• Demand side issue: Many industries (e.g. consumer durables) will get hit thereby hurting intermediate goods and basic goods sector too. Since locked-up consumers cannot think of spending on anything but essentials, companies will slow down investing in things.
• Infra sector: Since govt was the biggest investor here, its change of focus will change things. Year 2019 was good for steel and cement industries, which will now surely stumble. Real estate sector too will stumble.
• Services sector: Shutdown of railways and public transport, and aviation, has hit many sectors hard. That includes hotels, tourism, retail, restaurants, etc. Hotels-restaurants employ 75 lakh people in India. Imagine the scale of job losses. Anyway, bulk of jobs are in MSME sector in India, and they don't have cash reserves to last months together.
• Two issues for the RBI:

1. Rate cuts do not get transmitted quickly. And more rate cuts mean less spread with US Treasury, so FPIs may exit. So currency management issues crop up. And rate cuts will not stimulate demand (consumer confidence low due to virus).
2. Banks aren't doing much. Firms don't have enough leverage to keep salary payments going, and banks should directly give 3 months’ overdraft for employees (and deduct from companies later, at low interest rates).

• Some suggestions:

1. Firms struggling with cash flows must get govt. backed loan guarantees, upto 25% of present working capital arrangements
2. All ratings and reviews to be suspended for the time being
3. RBI must give liquidity to NBFCs and MFIs
4. Govt must pay due tax refunds right now (and pay upto 75% of pending litigation amounts too - recover later if needed)
5. Bring major private hospitals in the pandemic battle's mainstream, and give quicker regulatory approvals
6. Existing import-export policies and incentives - MEIS, SCIS, EPCG license - to be extended for 1 more year
7. Mandate compulsory spend of CSR on fighting this pandemic
8. Ramp up production of essential equipments through Women SHGs - hand sanitisers, masks etc.

• Summary: Tough times don't last, tough people do.
• The pandemic will test Indian economic resilience to the extreme.

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