Dousing the cash-burn
The crushing financial impact of the extended lockdown can only be countered when corporate Indian cooperates with the Government and the masses in rebuilding the economy
Let's talk lockdown. And let's begin with version 1.0, a vividly-debated 21 days which paradoxically brought both homeliness and homelessness to India. The world's biggest lockdown, ever, saw the shutting down of India's construction sites, factories, businesses and service sector enterprises. It also suspended flights, stopped trains of varying genres and restricted the movement of people and vehicles. While scores of daily-wagers walked our highways and roads, and many more remained constrained in isolation and quarantine zones in metropolises and other cities, corporate India did some deft number-crunching and threw up some financial figures. Lockdown 1.0 has cost the Indian economy around Rs 8 lakh crore in the first 21-day period itself, industry bodies contend. This, they claim, is because nearly 70 per cent of the economic activity in the country has been shuttered without adequate forewarning.
Let's look at some cases in point — cutting across industry segments. The All-India Motor Transport Congress (AIMTC) claims that just the trucks-related businesses have lost Rs 35,200 crore in Lockdown 1.0, with vehicles stranded at state borders and goods being left to rot, especially of the perishable kind. The non-perishable stuff, like white goods, farm equipment and fertilisers, liquor and so on are being looted at vulnerable points, they complain.
The National Real Estate Development Council of India says the realty sector has lost Rs 7,500 crore in Lockdown 1.0, with construction work on projects screeching to a standstill. Remember, the Indian realty sector was languishing even before the lockdown. Even the Government's recent Rs 25,000-crore rescue package for the completion of stalled projects had little or no impact, given the sheer number of such prevaricated projects. The numbers involved are staggering — a total of 115 insolvency cases were filed under the 'Real Estate' category till September 2019. Of these, 87 cases are under process, while 28 have been closed. The monies involved are mind-numbing — the 87 projects facing bankruptcy are worth around Rs 4 lakh crore, and Lockdown 1.0 has added Rs 7,500 crore to this number. And Lockdown 2.0 is now on, though we are seeing some relaxation and the Government is promising succour.
Moving on to the Centre for Monitoring the Indian Economy, joblessness in India has reached a staggering 23 per cent of the working population. Consider this, even before Lockdown 1.0 (beginning March 25, 2020), the country's national unemployment level was at a 45-year high of 7.7 per cent. Urban employment levels were worse, at over 9 per cent. An unreleased CMIE report stated that urban unemployment rate rose from 8.89 per cent in November to 8.91 per cent in December 2019. As stated, after the 21 days of Lockdown 1.0, the number now stands at 23 per cent.
Analysts further estimate that 20-25 per cent of those working in the retail sector will lose their jobs. The World Bank estimates India's GDP growth rate at between 1.5 per cent and 2.8 per cent. While the numbers are dismal and disparaging, the silver lining is that these are still amongst the best in the world, barring China. And the extrapolations and predictions for FY 2021-22 are at around 7 per cent — that's something we can call a 'golden lining' in these trying times.
Now let's get right back in the thick and deep with India Inc. The Federation of Indian Chambers of Commerce and Industry (FICCI) has estimated daily losses due to the lockdown at Rs 40,000 crore. To sum things up, FICCI President Sangita Reddy estimates Lockdown 1.0's total economic impact at around Rs 8 lakh crore, adding that this will only rise exponentially with the additional 20 days of Lockdown 2.0. FICCI also estimates that around 4 crore Indians will face job losses or salary cuts between April and September 2020.
According to the Associated Chambers of Commerce and Industry (ASSOCHAM), India Inc. needs Rs 14 lakh crore to galvanise the economy once the lockdown is lifted and industry attempts to get back on its feet. ASSOCHAM has also shared its mantra for the upliftment of the economy, with Secretary-General Deepak Sood formulating a calibrated approach for reopening of economic activities in phases — putting agriculture, export units, automated industries and selective construction ahead of other vital sectors, with each phase strictly adhering to safety SOPs, including medical fitness and testing of employees resuming work.
While industry bodies intonate their hymns and recipes for economic rejuvenation, their constituents and members from corporate India are near-silently chanting a new refrain. Some of India's leading companies have quietly moved the Labor Ministry and mooted the idea of increasing working hours from 8-9 hours per day to 12 hours daily, citing increased productivity and output, especially as their manufacturing units would be working with a below-par employee roster. The proposal is alarming as it attempts to surreptitiously put aside labour rights that were finally granted after decades of rift and altercation, as part of the Factories Act 1948.
As expected, INTUC, CITU and the Bharatiya Mazdoor Sangh have vehemently contested this proposal, saying it seeks to empower factory-owners to renege on their employment contracts and terms, leading to crass exploitation of workers' rights. According to analysts, this is symptomatic of corporates in adverse times, such as we face today.
Let's sum things up by turning the spotlight on India's corporates and look closer at their 'lockdown calls' for Governmental intervention. The tax collections of the Government of India have been estimated at Rs 24.23 lakh crore for the ongoing year. Around Rs 8 lakh crore from these collections would go to the states as their share of revenues, leaving the Central Government with Rs 16 lakh crore. That exact figure, oddly enough, is what corporate India is asking for — with India's economic revival being the pivot in this delicate balancing act, lest we keel over.
Admittedly, given today's grim COVID-19 backdrop and the foreseeable future outlook, governments worldwide have to step in and shore up their economies and corporates. India is no exception. The Government of India last month unveiled a Rs 1.7 lakh crore package in the first phase of funds infusion. The Reserve Bank of India (RBI), over the weekend just gone by, announced liquidity of another Rs 1 lakh crore to catalyse economic activity.
But corporates too have to do their bit in the larger scheme of things. Remember, after the first few hiccups in the economic reforms pushed in the 1990s, Indian Corporates saw 20 straight years of economic and promoter wealth growth and the number of Indians in the 'World's Richest' lists zoomed. However, that newly-Capitalist India did not share that wealth, except for a few stellar exceptions. So here is a clarion call for Indian corporates, similar to what is being followed around the world. Today, India's corporate big-wigs have the responsibility and opportunity to stand shoulder to shoulder with the Government and the masses to rebuild India.
Look Westwards. Alitalia has received a survival infusion from the Government of Italy. In return, the Government's stake in the airline has increased. The United States and Britain have announced partial nationalisation of top corporates in exchange for bailout packages. Spain, one of the hardest hit by COVID-19, has already taken over the private healthcare system in the country in a similar arrangement. France and Germany are speaking the same language.
Here is today's established tomorrow — after the COVID-19 pandemic fades away, the ensuing slowdown will be worse than the one witnessed in 2008 and far closer to what the world witnessed after the 1907-08 recession. At that time, then US President Theodore Roosevelt was forced to empower Americas' trade Unions and introduce labour rights. It took another 30 years and the Second World War before nations spoke of the 'welfare state'. And a build-up, mend-up ensued.
Today, we are preparing to blend the economic broth in a similar cauldron. Only now, the flame is not simmering. It is raging. It is going to take careful and collective stirring, personal sacrifice and a potent dose of nationalism to get the magic potion brewing again.
Views expressed are strictly personal