Covid-19 economic woes may continue beyond April-June quarter: Survey

Covid-19 and the subsequent 40-day lockdown, which have halted industrial production, caused the closure of commercial establishments and the suspension of all forms of public transport, is expected to take a heavy toll on the Indian economy, Asia’s third largest.

About 29% of 3,550 companies polled in a survey published on Wednesday plan to defer or cancel their investment plans in the aftermath of the coronavirus disease (Covid-19) pandemic, which, they said, will have an impact on the economy going beyond April-June, the first quarter of the financial year, attesting to the long haul they face in returning to normal.

Wheat is harvesting by hand at a field in the Bulandshahr district of Uttar Pradesh, India. As many as 79% of the respondents said the biggest challenge will be getting supply chains back on track, procuring raw materials and transportation to consumer destinations. (Bloomberg)

More than half the respondents said the measures taken by the government wouldn’t have much of an effect in countering the virus’s impact on industry, according to the findings of the survey, jointly conducted by the Associated Chambers of Commerce and Industry of India (Assocham) and consulting firm Primus Partners

Only 11.5% of companies surveyed found the government’s measures to be “very effective.” Thirty-four percent found them “somewhat effective” and 27.5% of respondents said they would have “no effect” on industry. The remaining respondents clubbed them in the ineffective category, said the survey.

Covid-19 and the subsequent 40-day lockdown, which have halted industrial production, caused the closure of commercial establishments and the suspension of all forms of public transport, is expected to take a heavy toll on the Indian economy, Asia’s third largest. The International Monetary Fund has predicted that India’s economy would grow 1.9% in 2020, the slowest pace since 1991.

The government needs to send out a clear message and come up with a plan that is focused on industry, not just small enterprises but large businesses as well, said Nilaya Varma, co-founder of Primus Partners.

“Large industries, in some sense, are suffering even more – they do not just have to pay for employees, with no production ,but also [have been hit by] disruption of supply chain and, most importantly, lack of demand across the world,” he said.

“What we really need is an economic stimulus package that is focused on sectors, sector reforms and direct working capital support to the companies that is immediate. This will provide the confidence to the Indian Industry to continue with its capital investment and expansion plans which in turn will aid a sharp recovery,” Varma said.

Since the lockdown was imposed on March 25, the government and the Reserve Bank of India (RBI) have announced several measures to provide relief to the poor and infuse liquidity into the banking system.

The finance minister on March 26 unveiled a welfare package of Rs 1.7 lakh crore for providing food and cash to the poor. RBI has so far announced two sets of measures, reducing the policy rate to 4.4%, pushing banks to lend more, providing Rs 4.74 lakh crore of liquidity, and easing bad loan norms to ensure the books of banks aren’t awash in red.

The survey said restrictions on the movement of people and goods have affected workforce capacity and disrupted supply chains, bringing economic activity to almost a standstill. “While most respondents don’t expect their industry to recover soon, they are also not confident of the effectiveness of measures to support their industry-specific challenges at the state level,” it said.

The survey covered companies across different sectors, including manufacturing, infrastructure and services encompassing all segments -- small, medium and large.

It found that the lack of working capital is the biggest worry of the industry (33%), while payment of salaries with output loss was the second biggest pressure point for 27% of the respondents. When it comes to revenues, over 78% of the respondents said the impact in the April-June quarter would be the maximum, but will stretch into the subsequent quarter as well

As many as 79% of the respondents said the biggest challenge will be getting supply chains back on track, procuring raw materials and transportation to consumer destinations.

When it comes to staffing, the survey found that 36% of the respondents had no plans to change existing headcounts because they would like to retain their human resource to restart their businesses smoothly when the economy reopens. Even so, 26% of respondents feel the need to reduce their workforce by more than a fifth because of the ongoing crisis.

Assocham secretary general Deepak Sood said industry is in for a “long haul.”

“It goes to the credit of both employers and employees that we have so far avoided displacement of workforce. Companies are resorting to pragmatic solutions like reducing manpower costs and retaining the headcount, while employees are responding well to the fast developing situation, being among the most important business stakeholders’,” Sood said.