The deadly pandemic Covid-19 continues to take a toll not only of human lives but economy. The first priority, no doubt, is saving the humanity from the jaws of death. The Indian government has declared a 21-day lockdown of the entire country from the midnight of 24th March. This bold move helps prevent the spread of virus through socialisation and buys it time for the preparatory work required for basic public health facilities across the country, as it lacks adequate public healthcare infrastructure to meet potential massive outbreak. It also will give sufficient time to augment and wisely distribute resources at command as the situation will unfold.
The economic impact of Covid-19 is multidimensional. If people are not working, it means that there is no productivity, no consumption and this applies at both the individual and the collective level. It is also a fact that we cannot distribute wealth which has not been produced. Because of the lockdown the production has stopped and supply chain has broken. This will result in a huge cash flow deficit in the market once the lockdown is lifted.
The moratorium of the loans is a temporary relief to the industries but not sufficient to face the huge fiscal deficit and resource crisis. The financial performances during the last quarter of the financial year will also affect the ratings of companies. Down-grading the financial ratings of the companies will lead to the investors losing confidence on them and financial institutions will hesitate to outspread further credit facility. This is most essential for the survival of companies today. The government and RBI need to release a fresh Capital Adequacy Ratio (CAR) for banks. It should allow banks to take more risk while, in turn, relaxing the risk rate on banks to release adequate fund in the market. With this, industries could survive while making use of RBI’s reduced repo rates while availing fresh, but reduced interest rate loans even in a reduced credit rating.
Administrating the work safety of their large number of employees working in industries such as, production, infrastructure, construction, etc., needs further investment to assure it. Also availability and handling of the migrant labourers working in the organised and unorganised sectors in several industries is another major challenge, till the effects of the pandemic completely wear out. The migration of such daily wage labour class needs to be prevented and to avoid them from working for a longer period till the spread of the virus is totally controlled. During this period the household for such workers should be directly handed over to them under strict monitoring of government.
For the last few years, most of our micro, small, and medium industries (MSME) have weakened financially due to lack of policy and financial support. These companies could not have sufficient resources to survive the present crisis. They can only survive if the banks take a better credit risk and make the terms of MSME on loans more flexible. The government should extend the support as raw material subsidy, which should also be provided on time and transparently. Similarly, sectors like agricultural, infrastructure, tourism, service industry, and foreign trade require an impact analysis and specific mock-up and relief packages on region-wise to be shaped and issued by the government.
Crisis is the creator of all reformation. Sure, this unmitigated crisis will help banks and authorities to draw a better investor-friendly strategy and customised approach to industries.
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