Q/How hard has the lockdown hit the economy?
A/The near-complete shutdown of economic activity has impacted industry majorly, especially the micro, small and medium enterprises (MSME) sector. The key challenge is of liquidity as cash flows have been disrupted. Businesses are unable to pay regular fixed charges such as wages, electricity charges, rent and other fixed costs. The second challenge is the operation of the entire supply chain; some inputs and raw material are not reaching factories, or have been delayed. The third challenge is the shortage of labour.
Q/What are the ways to adapt to the ‘new normal’?
A/Given the disruptions in supply chains, there are a number of adjustments that businesses will need to consider. New ways of reaching and retaining customers may be required. Technology solutions could be a higher priority with machine learning, internet of things and other new platforms being given more importance. Strategies may relook at inventories to be maintained, transport and movement of inputs, sourcing from different areas and so on. Remote working options would also be an option. Fundamentally, I expect this experience to encourage all of us to look at how we can make a step change in the productive use of people, space and time.
Q/Do you think the remaining months can make up for the deficit caused by the lockdown?
A/I do not think the demand in the rest of the year can compensate for the deficit in consumption. While necessities will definitely be sought as soon as markets reopen, deferment of non-essential large purchases is likely.
Q/Can we look at ‘business-as-usual’ by Diwali?
A/The Confederation of Indian Industry poll indicates that most businesses are expecting normalcy in the economy after a year or so. Some sectors could pick up earlier. We have to note that India has a strong outward engagement and in the world as a whole, the Covid-19 situation has not yet peaked. Therefore, supply chains across the world will be affected. Diwali is about six months away and that would be a best-case scenario, if the exit from lockdown goes well and the global supply chain movement reverts to normalcy.
Q/What are the steps to be taken by the government?
A/The government must first stabilise the situation for people at the lower income scales. We have suggested an additional Rs2 lakh crore of public expenditure towards this. Further, the government debt-to-GDP ratio is low, and there is a lot of space available on this count for further spending on enterprise support. A key challenge is to ensure that the stress in the real [estate] sector does not filter into the financial sector. Banks and other financial institutions must be protected and have adequate capital for onward lending to enterprises.
In the medium term, the country must go in for land reforms, changing the labour regulations, and lowering the cost of doing business through a range of actions.