After taking necessary measures to safeguard the health and food security of citizens, especially the poorer sections of society, the government needs to urgently shift its attention towards fixing the economy, which is bearing the brunt of the Covid-19 pandemic and the nationwide lockdown aimed to limit the spread of the Coronavirus, says India Inc.
In a joint survey carried out by industry association Federation of Indian Chambers of Commerce and Industry (FICCI) and tax and regulatory consulting firm Dhruva Advisors, 72% of the respondents said they estimated Covid-19-related disruptions to have a "high to very high" impact on business. The 380 companies, from across industries, that participated in the survey painted a grim picture vis-à-vis the future of the economy, as they expected widespread job losses, as well as shelving of capital expenditure and fundraising plans.
Around 70% of the surveyed firms expect sales to decline in FY21 and a majority see a reduction in cash flows and order books. “The survey clearly highlights that unless a substantive economic package is announced by the government immediately, we could see a permanent impairment of a large section of the industry, which may lose the opportunity to come back to life again,” the report, released on Tuesday, said.
Around 61% of the companies surveyed said they would defer approved expansion plans by 6-12 months and another 33% spoke of a delay of more than 12 months. Further, while 60% of the surveyed firms have deferred their fundraising plans, nearly 25% have shelved the same.
“The Covid-19 pandemic is causing deep economic harm and could reverse the gains made in the industrial economy over many decades. There is a need to render immediate and sizeable support to industry to protect people, jobs, and enterprises,” said Sangita Reddy, president, FICCI, and joint managing director, Apollo Hospitals. “Industry members are reeling under severe financial stress and are in urgent need of ample liquidity to ensure business continuity. We are hopeful that the government will introduce a series of measures in quick succession to support demand and ensure business continuity. This would be a confidence booster and we hope sentiment will improve following the economic package”.
These companies also stated that they were looking at various cost-control measures to tide over the current period of crisis, including manpower rationalisation, salary rationalisation (especially at senior and mid-management levels), deferment of appraisals, increments, and bonuses, and freezing recruitments. While 21% of the respondents saw a reduction of between 5% and 10% in jobs at their companies, another 39% forecast a reduction of more than 10%.
In light of the above, the expectations from the government for a stimulus package is at an all-time high. Though the Reserve Bank of India (RBI) has undertaken some measures to inject liquidity into the financial system and ensure smooth operation of the financial markets, India Inc. wants the government to intervene more directly. Around 69% of the companies surveyed said that the measures announced by the government thus far weren’t adequate to address the economic concerns of the country.
Key expectations from the government are those of tax reliefs and incentives, ease of compliances, and demand creation, including the release of tax refunds and arbitration awards; moratorium on loan instalments (along with interest payouts) and additional working capital from banks without collateral to ensure business continuity and further interest rate cuts.
“The broad-based survey shows the deep impact that Covid-19 is likely to leave on the Indian economy in the short to medium term. Clearly, the plans prepared by businesses on fundraising, investments, and expansion are being pushed back. Businesses will focus on cost optimisation and supply-chain management,” said Dinesh Kanabar, chief executive officer, Dhruva Advisors. “There is a significant expectation from the government for a financial stimulus and providing liquidity, including by way of tax refunds and cheaper credit, so that the economy returns to normalcy faster.”