Nirmala Sitharaman reviews sectors that may need intervention
A day after Prime Minister Narendra Modi announced the creation of a Covid-19 Economic Response Task Force, Union finance minister Nirmala Sitharaman, who will lead the task force when it is formally set up, met her Cabinet colleagues and senior officials to evaluate sector-specific concerns and draw up measures to assist them.
On Friday, Sitharaman’s initial focus was on aviation, tourism, hospitality, micro, small and medium enterprises — all of which have been adversely affected by the outbreak of the coronavirus pandemic — as well as on animal husbandry. She said: “We will take a view [on matters raised] as soon as possible”, and added that the ministry of finance was continuing to address sectoral issues. “The task force, when constituted, will also benefit from this.”
The government’s measures are expected to involve both policy changes and fiscal incentives, said two officials familiar with the matter. The plan is to have sector-specific policies, rather than one package, the first official added.
Minister for aviation, housing and urban affairs Hardeep Puri and minister for animal husbandry, dairy and fisheries Giriraj Singh discussed sectoral issues with the finance minister.
The spread of the virus has affected supply chains, led to slump in demand, forced businesses to scale down operations, and is expected to adversely affect growth rates and increase unemployment.
Deepak Sood, secretary general, the Associated Chambers of Commerce and Industry of India (ASSOCHAM), said the impact of Covid-19 pandemic is still uncertain.
“The government‘s efforts to contain the unchecked spread of the virus gives hope that the impact could be managed over time. Industry has, so far, been struggling with supply chain disruptions and recent shutdowns could create further stress across sectors,” he said.
The sector specific issues have been compiled by their respective ministries and will be discussed by the task force, officials said. Industry bodies have begun conveying their requests to nodal ministries, which in turn is relaying it to the finance ministry.
Aviation is among the most hard-hit in the wake of restrictions, including, most recently the ban on all international commercial passenger flights into India. Demand has dipped by nearly 50%, according to an industry study.
To mitigate the severe financial crunch, airlines have sought a waiver in landing and parking charges; and relief for payment on fuel (aviation turbine fuel) to oil marketing companies, said a third official familiar with the development.
The privatisation process for Air India is also likely to be further delayed. The submission date for bids has already been pushed back by six weeks by the Centre.
Tourism is severely affected too. The Indian Association of Tour Operators, which has estimated that the loss to the tourism industry will be around ₹15,000 crore in foreign exchange for March and April alone, wrote to the finance minister on March 16, asking for a revision of the Goods and Services Tax structure and tax holidays.
On Friday, in a joint letter to the finance minister, the Federation of Associations in Indian Tourism & Hospitality (FAITH), CII Tourism National Committee and ASSOCHAM Tourism sub-committee estimated that around 70% of a total estimated workforce of 55 million (direct and indirect) face the risk of unemployment.
“If there is no stimulus or no relief package in the next few weeks, we are staring at more than 10 million job losses. The sector might suffer irreversible damages,” said Subhash Goyal, chairman of ASSOCHAM’s Tourism Council.
Officials said that MSMEs, particularly in employment intensive sectors such as carpets, handicrafts, apparels, footwear, gems and jewellery, marine and perishables, with their major market in Europe and the United States, are likely to be worst affected, particularly in first quarter of FY 2020-2021.
ASSOCHAM has demanded a package for the MSME sector. “MSMEs should be provided concessional working capital loans, equivalent to one to three month’s (based upon the extent of disruption) average turnover of last year,” it said.
To support them, when the supply chains have been impacted globally, MSMEs should also be provided concessional finance at a rate of 5% for three months through SIDBI. The interest payment for such financing can be adjusted over the next three years as part of the Goods and Services Tax (GST), it added.
Another sector the finance ministry is closely examining is textiles. Apparel exporters have been hit hard by the disruption in global value chain due to coronavirus, Apparel Export Promotion Council (AEPC) chairman A Sakthivel said in a letter to commerce and industry minister Piyush Goyal, demanding an amnesty scheme. AEPC has asked the government to announce a general waiver of contractual commitments for non-fulfillment or short-fulfillment of exports under various export obligation schemes because of the “force-majeure” situation.
“For the last one week, many of the major brands and buyers from USA and EU have asked for postponement of orders or shipments which have completely upset our business and schedule,” Sakthivel said in a letter to the commerce minister.
Trade is hit hard too. An official said that the Federation of Indian Export Organisations (FIEO) has proposed a 12-point strategy, which includes asking banks to delay declaring companies’ accounts as non-performing assets (NPAs) for one year, encouraging Indian missions abroad to organise buyer-seller meets over video-conferencing, and providing a suitable corpus to cover wages for all workers who are given leave.
Niranjan Hiranandani, president, ASSOCHAM, proposed a “critical fiscal stimulus” package to keep the economy in good health. The proposalj includes a moratorium for debt servicing (principal plus interest), reduction of interest rates across the businesses, rescheduling of loan repayment, and moratorium in rating surveillance to prevent rating agencies from downgrading the ratings for a period.
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