With Covid-19 wreaking havoc in Indian financial markets and global research and rating firms marking down GDP growth estimates by up to 100 basis points, Prime Minister Narendra Modi Thursday acknowledged rising concerns of the pandemic’s adverse impact on the larger economy as he announced a “Covid-19 Economic Response Task Force” under Finance Minister Nirmala Sitharaman.
On its table are a string of proposals to mitigate the harsh second-round effects of the sudden and sharp destruction of demand.
These could include: an immediate cut in policy rate, regulatory forbearance for sectors in the frontline of disruption, government guarantee for loans to SMEs, deferment of taxes, and livelihood support for unorganised workers.
“The new task force provides a mechanism to get over the bureaucracy’s aversion to suggest bold measures and act upon these quickly — especially in unusual times like these. It is likely to include members from RBI, Sebi, the Prime Minister’s Office and the Cabinet Secretariat,” said a source with knowledge of discussions in the government.
COVID-19 effect: Rupee falls below 75 for 1st time
The Task Force will be in regular touch with all stakeholders. “It will ensure all steps are taken to reduce economic difficulties and execute them effectively,” the Prime Minister said.
Over the last one month, the government pulled out all stops to contain the spread of the Covid-19. During this period, economic ministries including Commerce and Industry, Heavy Industries, Road Transport, Civil Aviation, Pharmaceuticals and Consumer Affairs met and heard stakeholders.
However, there has been no clear assessment on the risks that credit and labour markets are staring at given the expanding lockdown and the damage this can inflict on the economy, sources said.
Over the last few days, the PMO and Finance Ministry sought suggestions from economic experts. But analysts are growing impatient, with many privately showing frustration that delayed action will lose its potency.
“Ideally, all engines should be firing since markets are rapidly deteriorating. There may be awareness of the damage at the highest levels of the government but action to give markets the confidence is not forthcoming. Hopefully now (it will happen),” said another source, who did not wish to be named.
In less than 10 weeks, the BSE benchmark index of 30 stocks has lost over 30 per cent, and the rupee has depreciated almost six per cent vis-à-vis US dollar.
Since the Covid-19 breakout, Goldman Sachs revised down global growth to 2 per cent from 3 per cent and India’s GDP growth estimate for 2020-21 to 5.2 per cent from 5.8 per cent. S&P Global Ratings too said India will slow down to 5.2 per cent in 2020 compared with its earlier forecast of 5.7 per cent.
What is most disturbing for policy makers is the likelihood of job losses in the informal sector given such a massive contraction of over one percentage point compared with the 6-6.5 per cent GDP growth rate estimated in the Economic Survey 2019-20.
The pandemic, which calls for, what a top industrialist described as “draconian social distancing” norms sharply slowing down economic activity, has left much of India Inc worried.
On Wednesday, Uday Kotak, Executive Vice Chairman and Managing Director, Kotak Mahindra Bank, and President-Elect of the Confederation of Indian Industry was speaking with half-a-dozen other promoter-CEOs including Shobana Kamineni of Apollo Hospitals, Naushad Forbes and Vikram Kirloskar, among others, to understand and gauge the second-round impact of sudden demand destruction and the support companies may need, particularly with liquidity conditions turning tighter than what they were early January.
A day earlier, almost two dozen promoters and CEOs, including Harshvardhan Neotia, Hindustan Lever’s Sanjiv Mehta, Apollo’s Sangita Reddy and Kanoria Chemicals’ R V Kanoria, had an elaborate two-hour discussion which bore out that cash flows of companies have started taking a hit, SMEs are feeling stressed and unable to meet repayment obligations, contract workers are being forced out of jobs and facing loss of income, and companies are hesitant to raise funds from the primary market given the sharp erosion in valuation.
“We definitely need the government to intervene,” said a source present in the meeting.
Corporate India which normally worries about its own bottom line is also concerned that the nature of the pandemic will affect those at the bottom of the employment chain the worst.
In fact, Vikram Kirloskar, Vice-Chairman, Toyota Kirloskar India, and President of the Confederation of Indian Industry, wrote to all members Tuesday, exhorting them not to put people out of jobs. “…it is critically important that we do not resort to retrenchment, especially of blue-collar workers and contract workers as this would bring much hardship and uncertainty to ordinary people and further add to their economic challenges,” he told CII members, asking the top leadership, instead, to take a pay cut.
The Prime Minister, in fact, made a similar appeal to businesses.
He asked them to adopt a humane approach towards people who render various services. “Don’t cut their salaries. They too have to take care of their families and protect them from the disease,” he said.
While India is relatively more isolated from the rest of the world, certain sectors that are facing the direct brunt are travel, aviation, hospitality, hotels and restaurant, and real estate.
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