It is well known that in the last few years the Indian Economy has experienced a significant slowdown. First & foremost, the Banking System has been under severe stress due to accumulated huge amounts of Non Performing Assets. These outstanding loans are mainly due to inefficient functioning, inadequate credit assessment, lack of due diligence while lending and poor monitoring of repayments. There is a substantial rise in the number & amounts of stressed loans emanating from the different sectors of the economy. At the same time many industries from various Sectors like power, iron and steel, infrastructure, mining, textiles, aviation, and automobiles etc have also been under stress & some even more than for four to  six quarters . 

The spread of Covid 19 & the resultant locked down has worsened the already existing serious economic situation & brought it to a critical condition. Consequently in the post Covid time, the economic  stress on the industry arising out of such a long, nationwide lockdown is expected to last more than one quarter in the next financial year according to the respondents of an ASSOCHAM Primus Partners’ joint Survey. But since many States are extending the locked down with the number of Covid positive cases increasing exponentially, the economy may not pick up even in the second & third quarters of the next financial year.   

Therefore, recovery of the underlying economy will be slow, and it may even take more than two years for attaining normalcy across all the different sectors. In view of the prevailing situation, the Finance Minister over a series of sequential Press Conferences has announced the economic package consisting of a mix of reforms, infrastructure building, support to stressed businesses and a certain amount of direct cash support.  The collateral-free loans that the package provides aims  to revive business activity and safeguard jobs.       

The vision of the Prime Minister – AtmaNirbhar Bharat Abhiyan (ANBA) – has been attempted to be realised through this package of INR twenty lakh crore combining structural reforms, and monetary and fiscal measures to make India self-reliant. The ANBA is visionary and is expected to have a substantial impact on our industry & economy.  The economic estimates of ANBA place its total fiscal impact at 0.8 to 1.2 per cent of India’s Gross Domestic Product (GDP). This time the government, as a welcome move, has focussed on certain essential &  long-pending structural reforms in different sectors like Defence, Aviation etc. However it is also seen that ANBA focusses largely on supply-side reforms and relief.  Medium, Small and Micro Enterprises, a section of manufacturers and employers, agricultural producers, Distribution Companies (DISCOMs), and other economic suppliers are the main beneficiaries.

The impact of the ANBA announcements are analysed below with certain suggestions for further necessary interventions across  different sectors/

Agriculture:  The government has announced large-scale reforms and investment in the sector. INR 1.4 lakh crore is directed towards strengthening Agri-infrastructure, and various investments in micro-food clusters, livestock, fisheries , medicinal plants, Operation Green, etc. These investments as well as liberalising trade by amending the Essential Commodities Act will help in empowering farmers who have awaited for a very long time for freedom to sell where they want .

Construction: This industry has been affected the most by locked down, due to movement of labour & break down in the Supply chains. One of the largest opportunities for growth and to provide mass employment after the pandemic is in construction and infrastructure projects. ANBA has however not addressed this sector in any significant manner. This Sector should be specifically focussed upon & must form a large part of the next package. The government must enable National Highways Authority of India, Railways and other organisations to pay off dues owed to contractors & settle all pending monetary claims. This will enable these large employers to have the liquidity to finance the next round of projects. New projects need to be commissioned urgently to sustain jobs. Recalling that Infrastructure is mostly government funded this is the one sector that should have been accorded maximum support since it has a ripple effect on various industries such as steel, cement, machinery, vehicles, rail and road transport and is extremely manpower intensive. Projects such as Bharatmala and Sagarmala, airports under UDAN scheme could have been allotted much larger support,

Manufacturing: MSMEs which are involved in manufacturing can now avail of government guaranteed loans totalling INR 3.7 lakh crore. 75 per cent of India’s manufacturing jobs are though SMEs as per NITI-Aayog data, and this liquidity infusion will help them to recommence their business. Further, the announcement of transformational reforms in coal, mining, defence production, and power can spur local manufacturing. However, these are all capital-intensive industries Therefore large scale infusions of capital would be required which would not be possible in these times .

Startups: Unfortunately hardly any relief has reached startups though Start Up Indi ais an equally important objective of the government .The Indian startup ecosystem – hitherto heralded for its rapid growth – is facing its biggest challenge yet, with its very survival at stake due to the COVID-19 crisis, according to a Nasscom survey, which showed that 70 percent of startups have less than three months of cash. To help these Startups overcome the cash crunch , the Government could have infused further capital into Small Industries Development Bank of India (SIDBI) in order to fund Alternative Investment Funds (AIFs) and disburse money to startups. Removing the LTCG tax can also help startups access capital from Indian investors. Reforms to incentivise insurance companies and other Indian institutional investors to pool money into Fund-of-Funds and direct investments are the need of the hour to keep India’s once-shining startup ecosystem afloat while the pandemic-lockdown & post Covid times go through.

Services: MSMEs in services sectors can avail loans, but unfortunately large business operators have not seen much relief. They too need a specific infusion of suitable package. This is especially required because most of the direct-impact sectors from Covid-19 are substantial employers — aviation, hospitality, restaurants, tourism, and others. Without relief from the government, they have had to let go of many employees. A special economic package including a one-year loan repayment deferment is required to tide them over until their operations start again, which could take an year to get to even 50 per cent of their normal operations.

Small businesses: The differentiation which has been newly introduced between different MSMEs who can avail targeted loans, as well as the expanded definition of MSMEs, may help somewhat.  With more than two months of economic lockdown inducing  more & more stress, it is suggested these funds be released quickly and banks be directed to lend as per the PM’s directives.

The move to clear IT, GST and customs duty refunds is helpful to a large extent. 

To sum up what needs to be done in different Sectors, the government can consider a further major economic package of infrastructure and mega construction projects & labour-intensive industries like Service & IT, Software & Tourism etc especially in the highly-populous heartland states, so as to absorb excess labour locally and put ‘earned’ money in the pocket of the needy who do not wish to live n charity and dole forever. This is particularly needed to solve the migrant crisis. Therefore, in the next wave of policy announcements,  the government  should look at further reducing interest rates to increase borrowing, reducing taxes overall, and providing more direct income support.

To be Continued…..


Read Part 2 : Revive, Rebuild, Revamp and Rejuvenate the Economy – Remedies & Recommendations – II

   

Tags:

Leave a Reply

Your email address will not be published. Required fields are marked *