The global economic growth has sustained a severe blow as a result of the COVID-19 pandemic. In India, the worst affected is the informal sector of the economy. However, India Inc is also facing a serious crunch due to the lockdown in the country. The manufacturing sector is battling stressed working capital cycles, with fixed costs remaining constant even as demand dwindles.
According to the Confederation of Indian Industry (CII), India’s GDP growth could fall under 5% in FY21 in the absence of decisive policy action from the government.
Strong Fiscal Action Needed
While the RBI has promulgated a package to combat the economic effects of the pandemic, the government is yet to come out with a comprehensive package for the formal economy.
The CII urged the government to consider providing a robust fiscal stimulus amounting to 1% of the GDP, or ₹2 trillion, to the poor, to help them financially as well as boost consumer demand. It has further urged the removal of a long-term capital gains tax of 10% and freezing the total dividend distribution tax at 25%.
FICCI, Assocham and CII Weigh In
Industry leaders have also requested a moratorium on debt servicing, including both principal and interest, reduction of interest rates and rescheduling of loan repayments. Members of the Federation of Indian Chambers of Commerce and Industry (FICCI) have further requested a moratorium on loans, as well as a waiver on GST payments.
Companies are worried about raising capital, as equity markets have plummeted due to panicked global investors selling en masse. With no sign of stabilising anytime soon, some members of FICCI have requested steps to curb the volatility of the markets. Leading listed companies are calling for a ban on short-selling.
High Expectations from India Inc
While the RBI has announced a three-month moratorium on loans, most companies consider it to be inadequate and expect the government to extend it for at least one year. Many also believe that the rules of the Insolvency and Bankruptcy Code (IBC) should be made flexible – such as the deferment of proceedings for six months from when the lockdown ends.
The wishlist from Assocham and FICCI includes measures such as working capital support, relaxation in NPA norms, suitable cuts in policy rates to boost consumption and investment, payroll tax holidays + tax credit for sick leave/work from home, GST concessions (rollovers or lower rates), sector-specific relief measures for manufacturing, entertainment, etc. In addition, they anticipate reduced fuel prices, stimuli to increase consumer purchasing power, suitable cash support for workers from certain groups, mortgage holiday for one year, a three-month extension for income tax payments, and a waiver in utility costs for the poor.
The industry is seeking a much bigger support package than the government is reportedly discussing. Only time will tell if the recommendations and requests of industry bodies will yield the desired results.