Unprecedented collapse in economic activity; 70% firms expecting degrowth: Survey

Majority of the businesses do not foresee a positive demand outlook in this fiscal

economy-lockdown-salil Industries that have suspended their production cannot jumpstart production as hundreds of trucks and lorries, along with materials, are stranded across the country due to the lockdown | Salil Bera

Indian businesses have witnessed an unprecedented collapse in economic activity over the past few weeks due to the coronavirus-induced lockdown. "The magnitude and speed of collapse in economic activity that India has seen over the last few weeks is unprecedented and there is tremendous uncertainty about what the future holds for businesses and enterprises," a joint survey by FICCI and Dhruva Advisors revealed on Tuesday. 

About 72 per cent of the 380 companies from across sectors reported "high to very high" level of impact on their business. "A substantial majority of the respondents do not foresee a positive demand outlook for their business in this fiscal, with 70 per cent of the surveyed firms expecting a degrowth in sales in the fiscal year 2020-21. A vast majority also foresee a reduction in their business cash flows and company’s order book," the survey report stated. 

The survey clearly highlights that unless a substantive economic package is announced by the government immediately, we could see a permanent impairment of a large section of industry, which may lose the opportunity to come back to life again. Jobs are also at risk over the coming months as nearly three fourths of the surveyed firms said that they may look at some reduction in manpower in their respective companies. The joint nationwide survey of businesses was conducted by FICCI and Dhruva Advisors over the last week.

About 69 per cent of the respondents believe additional measures or packages should be announced by the Centre to counter the COVID-19 impact. The key expectations from the government is for tax reliefs/incentives, ease of compliances and demand creation. Specific support sought from the government and the Reserve Bank of India (RBI) include measures like increase in MEIS/SEIS rates, releasing pending payments--tax refunds, arbitration awards, additional working capital from banks without collateral to enable business continuity, further cuts in lending rates. 

“The COVID-19 pandemic is causing deep economic harm and could reverse the gains made in the industrial economy over many decades. There is a need to render immediate and sizable support to industry to protect people, jobs, and enterprises. Industry members are reeling under severe financial stress and are in urgent need of ample liquidity to ensure business continuity. We are hopeful that the government will introduce a series of measures in quick succession to support demand and ensure business continuity. This would be a confidence booster and we hope sentiment will improve following the economic package,” said FICCI President Dr Sangita Reddy.   

The survey showed that many businesses in the country have also temporarily shelved expansion plans for the time being. In respect of approved expansion plans, 61 per cent expect to defer such expansions for a period upto 6-12 months, while 33 per cent expect to defer approved expansion plans for more than 12 months. Further, while 60 per cent of the surveyed firms have deferred their fund-raising plans for the next 6-12 months, while nearly 25 per cent of the firms have shelved the same. 

Meanwhile, many companies are hurriedly shifting their focus on cost optimisation measures such as manpower rationalisation, salary rationalisation (especially at senior and middle management-level), appraisals/increments/bonuses deferral, reduction in discretionary expenses and freezing recruitments. “Clearly, the plans prepared by businesses on fund-raising, investments and expansion are being pushed back. Businesses will focus on cost optimisation and supply chain management. There is a significant expectation from the government for a financial stimulus and providing liquidity, including by way of tax refunds and cheaper credit, so that the economy returns to normalcy faster,” said Dinesh Kanabar, Dhruva Advisors CEO.

With domestic demand plummeting to record low levels, many companies are also hoping that exports may provide an outlet for them to energise growth. While 43 per cent of the surveyed firms reported that they do not foresee an impact on exports, nearly 34 per cent said the exports would take a hit by more than 10 per cent.