The coronavirus disease (Covid-19) and the lockdown in place to combat it could cause permanent damage to businesses and force many to lay off staff unless the government announces a substantive stimulus package immediately, respondents to a business impact survey conducted jointly by the Federation of Indian Chambers of Commerce and Industry (Ficci) and consultancy firm Dhruva Advisors, said.
“Jobs are at risk over the coming months as nearly three-fourths of the surveyed firms said that they may look at some reduction in manpower in their respective companies,” the industry body said, citing a survey of 380 companies across industries. Ficci has been demanding a stimulus package of ₹9-10 lakh crore to bring the economy back on track, while some industry associations have demanded a ₹16 lakh crore industry revival package. Niti Aayog, the government’s think-tank has said that a package amounting to 5% of GDP is in order, which comes at around ₹9.5 lakh crore.
The government has thus far neither announced a package, nor indicated when it will do so.
According to the survey, 69% of respondents expect the government to announce a package, with tax relief, fiscal incentives, and efforts to ease compliance and create demand. Officials in the finance ministry said on condition of anonymity that various options have been ready with the government and it will come up with right stimulus package in an appropriate time.
The impact of the pandemic and the universally adopted way to flatten the curve of infections (a lockdown) has taken a toll on the economy. While the International Monetary Fund (IMF) expects India to grow by 1.9% in 2020, most others aren’t as optimistic. The Reserve Bank of India (RBI) has so far announced two sets of measures, reducing the policy rate to 4.4%, pushing banks to lend more, providing ₹4.74 lakh crore of liquidity, and easing bad loan norms to ensure the books of banks aren’t awash in red.
According to the survey, companies want export incentives, release of pending payments, tax refunds, additional working capital from banks without collateral, and further cuts in the policy rate. The survey said 70% of the firms expect sales degrowth in current fiscal year and foresee a reduction in their business cashflows. The magnitude and speed of collapse in economic activity because of the pandemic in the last few weeks is unprecedented and there is tremendous uncertainty about what the future holds for businesses.
Additionally, 61% of the companies surveyed said they may defer their expansion plans for six to 12 months, while 33% expect to defer approved expansion plans for over a year. While 60% of the surveyed firms have deferred their fund-raising plans for the next 6-12 months, nearly 25% of the firms have shelved any such plans for the time being.
“There is a need to render immediate and sizable support to industry to protect people, jobs and enterprises… We are hopeful that the government will introduce a series of measures in quick succession to support demand and ensure business continuity. This will be a confidence booster and we hope sentiment will improve following the economic package,” Sangita Reddy, president, Ficci said.
Apart from domestic demand plummeting to record low levels, some companies are also expecting exports to fall. While 43% of surveyed firms reported that they do not foresee an impact on exports, nearly 34% said that exports would take a hit by more than 10%, the survey said.
Mr Dinesh Kanabar, CEO, Dhruva Advisors said: “Clearly, the plans prepared by businesses on fund-raising, investments and expansion are being pushed back. There is a significant expectation from the government for a financial stimulus”.