Even as India Inc. braces for a prolonged period of turbulence in the aftermath of the Coronavirus (Covid-19) pandemic, the domestic supply chain’s dependence on China for raw materials would continue, as the country from which the virus originated returns to normalcy, says Harsh Goenka, chairman, RPG Enterprises.

In the wake of what is arguably the biggest Black Swan event of our times—many say it is bigger than the global financial crisis of 2008-09—a growing chorus of voices has called for companies to diversify their supply chain by looking at sourcing input materials from countries other than China to avoid the kind of disruption seen at present. Many observers have also suggested that India should take advantage of the situation and attract foreign direct investment (FDI) in manufacturing by persuading companies to set up export-oriented manufacturing capacity in the country.

In an interview with Fortune India, Goenka—who helms the Mumbai-based tyres-to-information technology business group—says that is unlikely to happen, as large global economies are likely to turn protectionist and encourage local manufacturing to address concerns around unemployment arising from an imminent global recession. He also said that unless the government throws enterprises a lifeline, many of them may permanently go out of business.

Goenka says whenever the country comes out of the crisis, the [Indian] government needs to rapidly scale up public expenditure in sectors such as infrastructure to create jobs and demand for intermediate goods; along with finding ways of putting more money in the hands of people. This, in turn, will help generate consumption demand. Edited excerpts:

According to you, is this the worst economic cycle that India has witnessed since Independence?

These are certainly the most challenging times that I have seen; much worse than the subprime crisis of 2008. There is a double whammy—one, there is a devastating impact on public health; and second, there is an economic impact arising from large-scale isolation and quarantining measures. It is pretty much the same situation around the world. Up till now, all of us wanted a highly connected and interdependent world and that’s partly why we are feeling a greater impact of the pandemic.

What do you make of the government’s response to the current crisis?

There have been a lot of arguments for and against the nationwide lockdown. I personally believe that the Prime Minister has taken the step at the right time, in the larger interest of health and life.

From what I understand, there could also be a calibrated reopening of the economy from April 15 onwards. We have received a notification permitting us to open our plantation businesses (rubber and tea) with 50% of the workforce. The government is gradually trying to understand what are the economic activities that are more essential than others, and opening up of economy accordingly.

The good thing is that, for the first time, I am seeing the bureaucracy—across the state and central governments—working in sync. They are extremely effective and proactive. They are calling upon industry leaders not just for funding, but also innovative ideas to deal with the situation.

Going forward, what are some of the ways in which you expect the finance ministry and the Reserve Bank of India (RBI) to deal with this situation?

Though a rate cut has been announced, we need many more measures. If we look around, businesses have closed, unemployment has risen, production has come to a virtual halt, and migrant workers have all returned home. Our growth was spluttering even before the crisis blew out of proportion The government, rightly, focussed on ensuring the pandemic doesn’t spread and offering relief to the poor.

But now, we need measures such as relief in payment of taxes and statutory dues without penalty and interest; additional working capital for companies; and ensuring the rate relief given by the RBI gets fully transmitted. We need massive investments in public expenditure in avenues such as infrastructure development, which in turn will again help create jobs and demand for inputs.

We have to take a call on our fiscal deficit situation and see how we can allow it to drift. It may have an impact on sovereign credit ratings, but so be it. A rate cut is welcome but it won’t create consumer demand unless we have jobs that pay.

Do you expect a flight of foreign institutional capital from the country and what can we do to attract FDI in the coming months?

This will be a serious issue since FDI and FII (foreign institutional investment) inflow into India is bound to reduce. We have to rethink and recalibrate existing FDI limits and allow larger foreign holdings in certain sectors. Sometime back I was thinking whether there is an opportunity for India to attract manufacturing investments away from China. But that may be unlikely since China has recovered extremely well from the whole crisis.

Also, each country will now become a protectionist. With unemployment growing in large economies due to the impact of Coronavirus, I personally believe that countries like the U.S., the U.K., or Germany will try to create employment within their own countries and stop the outsourcing of manufacturing to China and India. They would want to become much more self-reliant and technology will play a major role in this.

Should India accept 5-6% GDP growth as the new normal?

I personally believe that if we can achieve 5-6% GDP growth, we should consider ourselves lucky. Businesses were hoping for a 15-20% growth in the top line this year, but that is now a pipe dream. This year, there may be a contraction of nearly 10% in terms of the top line of companies and a monumental impact on the bottom line. The losses will be on account of the fixed costs that businesses are carrying on their books at a time when production has come to a virtual halt and mark-to-market losses on inventory.

Unless the government throws the industry a cash lifeline, you may well see 10-20% of businesses turning insolvent. Companies have to do everything possible to conserve cash and cut costs and innovation has to become the prime agenda, with new business models emerging. Contactless commerce will become much more important and consumer behaviour is going to change.

With a spate of ratings downgrades and cash flow challenges, do you think fundraising will become a hurdle for many Indian companies?

After the measures announced by the RBI, banks are flush with funds. But they are only willing to lend to companies that have a healthy track record of loan servicing. As a result, many companies that actually need the funds may not be able to get it.

There has been a historical overdependence on China for input goods. Has the time come for companies to look at alternate supply chain solutions?

China has come back with a bang from the issues it faced in a short span of time. Wuhan is back in action and supplies have resumed. This is a Black Swan event that is unlikely to happen every year. We definitely have to get smarter and make back up plans as far as supply chain diversification is concerned, but the dependence on China will continue. Ultimately you are here to do business and you will procure from whoever gives you the best price and quality.

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