More than half of the Indian businesses has already felt the impact of Coronavirus on their business operations and 80 % of the companies have reported decrease in cash flow, according to a survey done by FICCI which warned that the impact could derail India’s growth story.
The pandemic has had a major impact on the supply chains as more than 60 per cent respondents indicate that their supply chains were affected. The companies also highlighted that they are closely monitoring the situation and expect the impact of the pandemic on supply chain to worsen further, said the report.
Organisations have brought in a renewed focus on hygiene aspects concerning the pandemic. Almost 40 per cent have put in place stringent checks on people entering their offices and disinfection. Nearly 30 per cent organisation have already put in place Work-from-Home policies for their employees. Nearly 42 per cent of the respondents feel that it could take upto 3 months for normalcy to return, it said.
The trae body has also suggested a number of steps including urgent policy interventions to contain the spread of virus and address the pain points in the industry.
“A combination of monetary, fiscal and financial market measures is needed to help the businesses and people cope with the crisis. Therefore, to be able to frame correct actions and policy measures, it is important to understand clearly the specific problems that people and businesses are facing currently. This alone can enable government to take appropriate measures. The Indian Government & RBI need to support the Indian industry and economy at this juncture in different ways,” the report said
Here are a few steps suggested:
- Bring down the cost of funds further through reduction in policy rates (say, by ~ 100 basis points)
- Maintain liquidity at surplus levels and provide special liquidity support for any companies / NBFCs / banks that come under strain due to intensifying risk aversion in financial markets or due to large demand shock.
- Enable Credit and support easier credit facilities to effected sections of the businesses that operate on very short financial cycles and will be forced to stop production / trading for financial wants. Government / RBI should direct banks not to stop disbursement of loans under the expectation of project delays due to COVID-19.
- Increase credit limits for all regular banking accounts by 25 percent across the board.
- Furthermore, flexibility needs to be given to the banking system to reschedule payment terms without the need for provisioning.
- The Corporate bond and commercial paper market are suffering illiquidity. RBI may take some steps to intervene, either directly or through the commercial banking system, to ensure that adequate funds flow into this market. In the US, the Fed has stepped in to directly buy commercial paper, a strategy that it last used in the financial crisis of 2008.
- Increase Drawing Power (DP) – by (a) asking banks to take weightage of 1.5X for current assets instead of 1.00X OR (b) asking banks to remove the margin of 25% for a period of 6 months to a year in the DP calculations.
- Direct banks to look at a limited window of next 6 months for GCP (General Corporate Purpose) loans limited to maximum of say 15% of existing credit limits as an addendum to the current credit limits as of end Dec 2019.
- Not paring down government’s capital spending plans despite any shortfall in tax collections. In current times, it would be appropriate to relax fiscal deficit targets in order to support growth.
- Substantial increases in public health spend is needed to ensure adequate supplies to deal with COVID-19: masks, gloves, medical kits for the health workers, medicine, health centres, more hospitals etc.
- Increase overdraft facility to state governments from the RBI. Pay the pending GST compensation immediately.
- Provide income support to low income families through DBT. PM Kisan is already doing it for farm households. Support farmers through higher MSP and also those who have lost output due to unseasonal rains. Need to kickstart a lot of relief programs just like drought relief.
- Carry forward period of MAT may be increased by a year or two from 15 to 17 years.
- Personal taxation: Additional deduction may be given for salaried employees at a flat rate, for incurring additional expenditure on the Corona preventive measures.