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23 Oct 2020, Edition - 1928, Friday

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Columns

Impact of COVID-19 on industry – A Bird’s eyeview

Ganapathi R

Southern Indian Chamber of Commerce and Industry (SICCI) compliments Prime Minster Shri Narendra Modi for taking stringent measures to control the spread of conoravirus. We compliment the government’s first economic stimulus package of relief measures for the most vulnerable sections of society for three months. This covers 800 million people, about 60 per cent of the world’s second-most populous country.

However, the complete 21day shutdown of most economic activities has created new roadblocks causing severe, disruptive impact on both demand and supply. The lockdown is causing significant disruption across multiple sectors, including manufacturing, oil, finance, among others. The cost of the COVID-19 lockdown has been pegged at around $120 billion (approximately Rs 9 lakh crore) or 4 per cent of the GDP, said analysts on March 25, who have predicted a sharp cut in growth estimates.
It is now certain that the world will go into recession, and India is not likely to “remain decoupled”. Further, 90 per cent 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 grind to a halt.

Manufacturing sector faces a triple challenge. First, there are going to be serious supply chain distortions 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 be impacted starting with the consumer durable goods and will cascade to other intermediate and basic goods. The government was the major investor in infrastructure construction which will slow down now with resources and attention being diverted. Hence, industries like steel and cement, which did well last year, will stumble. Consumers who are locked up at home cannot spend on goods other than essentials and corporates will not think of investing. Hence, manufacturing output and investment will be under pressure for the next several quarters or so.

India’s foreign trade saw a dip, both decrease in import and exports. The deeply integrated global value chain of the export sector has been impacted by disruptions in both exports and imports.

Service sector have been buffeted directly because the fall in use of services means a fall in demand. These include aviation, hotels, restaurants, tourism, retail, malls etc. The major blow has been the railways which has shut down along with other public transport. The real estate sector, which has already been in deep trouble, faces an uncertain future as all construction activities have almost come to a halt. Even 10-20 per cent job losses among its 7.3 million employees in restaurants across the country would mean up to 15 lakh losing their jobs, something that would have severe social consequences.

While the immediate focus has to be on the health and safety of the citizens, any delay in addressing the economic consequences will lead to massive job losses. The government also has to recognise that the bulk of non-agricultural employment in India is from the informal and the MSME sectors, whichdo not have the cash reserves to continue paying salaries with no or restricted production. The focus should be on preserving these economic players. SICCI suggests the following for the government as well as for private sector:

•The Reserve Bank of India (RBI) has to face two problems. Transmission on rate cuts has been inadequate. Second, rate cuts will shorten spreads with US Treasury and FPIs could withdraw from our markets resulting in exchange management issues. While RBI can act still further on rate cuts and regulatory forbearance, 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.

•The second problem is with the banking system. 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 and this will be escrowed to companies with a nominal rate of interest not exceeding 3 per cent. The same could be recovered from the companies over a period of three months, six months after commencement of production, post the present crisis.

•With regard to the 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 and the concept of “one fit for all” cannot be applicable to 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, where the bulk of the workers are employed, the government’s relief measures do not adequately address. The opportunity loss in the services sector is significant and permanent, especially in such areas that are dependent on a high degree of human interface, such as restaurants, passenger transport, etc. The government should consider contributing the employers share of PF for all employees earning less than Rs.20,000 per month and ESI contribution for all employees earning below the statutory threshold level of Rs 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 governmentbacked loan guarantee, basis which firms can raise loans from the banking sector on preferential terms to the extent of 25 per cent 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 – upto75 per cent should be given without any verification and any wrongful claim can be recovered without any interest.

•Expedite speedy approval for reputed private hospitals in Chennai such as Apollo, CMC and Fortis that have developed testing facilities and are awaiting approval from the Indian Council for Medical Research (ICMR).

•Private hospitals need to be encouraged to provide specific number of isolation wards to the poor and extend financial assistance on soft terms.

•Necessary relaxation in the rules under PradhanMantri Swasthya Suraksha Yojana (PMSSY).

•The export incentive schemes like Sec 10AA for SEZ units under the IT 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 wave their penal charges.

•Fixed charges levied may be waived and industry may be charged only on the actual consumption of electricity, and immediate refund of IGST will help exporter in dealing with liquidity issues.

•In order to have a Business Continuity Plans where the economy is better prepared for a work from home arrangement, 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 additional hospital beds, ventilators and PPEs, besides investing in testing and other facilities aimed at preventing the spread of the virus.

•High Networth Individuals (HNIs’) should be encouraged to do likewise. Additional tax concessions may be looked at for this sector.

•25 per cent of the funds (including gold), available with all religious trusts (irrespective of denomination) should be made available by these places of worship towards more clean quarantine facilities and additional hospital beds, ventilators and PPEs.

•Women’s Self-Help Groups (SHGs) 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.

While concluding, as the poet Shelly says:
” If winter comes, can spring be far behind”.
India’s best days are ahead, despite this distraction.

(The author is President, Southern India Chamber of Commerce & Industry)

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