Chandrajit Banerjee
​Director General, CII

The Narendra Modi government’s decision to impose one of the strictest lockdowns worldwide, which has now been operational for close to 50 days, has augured well to flatten the curve on casualties in India, but it is bound to have some serious implications for the economy. The jury on the debate over lives and livelihoods is still out in the open, but urgent action will now need to be taken to get the economy back to a safe and sustainable start.

With the nationwide lockdown further extended till May 17, though with considerable relaxations in the orange and green zones, industry is now trying to find its way around the new normal. This is because, despite these relaxations, it will take a while to put in place the requisite checks and balances for getting full capacity on board. Add to that, industry is also facing a major challenge with respect to the availability of workers to recommence their operations.

These sentiments were echoed by more than 100 top industry leaders in a survey conducted during the special meeting of members of the CII national council 2019-20 held recently. Most of the CEOs (around 90 per cent) predict a fall in GDP growth in 2020-21. Of this, a large proportion of the respondents (38 per cent) anticipate that the fall in growth will lie in the range of minus one to minus two per cent; while 36 per cent feel it will fall even below minus two per cent. This spells out the urgent need for a fiscal stimulus package from the government, one which will herald a sharp recovery from the current abyss.

With companies shutting shop as a result of the lockdown across the country, predictably, the corporate performance outlook for the current financial year looks bleak, according to the CII’s survey results. A major proportion of respondents (32 per cent) expect their topline to contract in a range of 15-30 per cent, closely followed by an almost similar proportion of respondents (30 per cent) who foresee a 0 to 15 per cent contraction, confirming the slowdown in the economy. Immediate measures are therefore required to give some relief to help the corporate sector recoup some of its lost ground.

It has been suggested that all industrial units, including in non-notified industrial areas and standalone units, be allowed to function in urban areas. In addition, the issues related to the availability of the workforce at factory sites also need to be streamlined and resolved with the utmost urgency to enable industries to resume operations. To alleviate their liquidity stress, we suggest that the banking system could step in by providing additional working capital limits, equivalent to the April-June wage bill of the borrowers, backed by a government guarantee, at 4-5 per cent interest.

The Covid-19 pandemic has induced a big external shock as well, with two of India’s biggest export markets – the European Union and the United States -- having seen extended period of lockdowns. This could inflict a further body blow to the companies which are already struggling with insipid demand conditions domestically. The survey results spell out the concerns of respondents, with nearly half of them (49 per cent) expecting exports to contract in the range of 0-15 per cent in the current fiscal. This will be especially detrimental to the prospects of companies that depend considerably on foreign trade. To alleviate their stress, as an immediate measure, exports should be classified under essential services so that they can operate with free movement of cargo across states. In addition, the interest subvention scheme currently available for MSME exporters could be extended immediately, apart from broadening its scope to include all exporters.

A significant majority of respondents (81 per cent) have indicated that they have faced problems in credit offtake from banks and NBFCs. To help banks tide over their risk aversion and lend to productive sectors of the economy, it is suggested that banks be assured of a government backstop either in terms of recapitalisation or a government guarantee on loans.

The other issue which the survey highlighted has been with respect to the anticipated job losses. A large proportion of respondents (39 per cent) expect a 10-20 per cent cut in jobs, closely followed by 32 per cent of the respondents who foresee a less severe 0-10 per cent decline in jobs.

For starters, it is important that labour-intensive sectors such as manufacturing and construction are accorded priority in any policy framework being worked out to fight the slowdown induced by the pandemic. This is crucial since any losses in jobs and livelihoods are likely to have dire implications on the level of poverty and hunger and reverse many of the gains made by the country in all these areas.

Given the precarious state of the economy and the impact on livelihoods, it is important the government steps in urgently with a comprehensive package that addresses the issues of MSMEs, stressed sectors, liquidity and the common man.
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This article was first published in The Asian Age and Deccan Chronicle on May 13, 2020

With most economic activities in pause mode due to the Covid-19 contagion, businesses are expected to be hard-hit for at least a few quarters before operations return to normal. The humanitarian crisis is leading to huge demand disruption, which may persist and change habits overnight. The government is taking all necessary steps to ensure that the country and people of India are well prepared to face the challenges and threats posed by this pandemic. The tax regime will be one of the key systems impacted by the emergency situation, and it can also be a potent instrument for supporting economic revival.

The immediate impact was felt in terms of compliances with statutory requirements as well as in reduced ability to pay taxes. The relaxation in statutory and regulatory timelines in the taxation regime by the finance ministry was indeed a welcome relief for taxpayers. The move to reduce corporate tax rates from October last year could not have come at a better time, as it imparted confidence to businesses.

The two key issues being faced by industry in this challenging period relate to compression of fund inflows, which is combined with the necessity of continuing to pay for fixed costs. One of the key asks of industry has been that such extraordinary circumstances require unconventional measures. While companies are willing to pay the taxes due, we would request the government to consider extending the timelines for payments. All tax payments should be deferred until September 30, 2020.

All payments of tax due till then should be deemed to be paid. This will go a long way in adding extra liquidity in the hands of enterprises.

The government has made donations to the PM CARES Fund eligible under the corporate social responsibility (CSR) obligations. Medical relief contributions by industry would gain considerably by adding donations of masks, personal protection equipment, testing kits, and ventilators under the CSR-eligible expenditure. Other relief measures can also be considered for full deduction under this head.

Many companies have come forward to convert their plants into producing critical care items. This can be further incentivised with full depreciation for machinery used to manufacture such items or any equipment used for combating Covid-19.

Tax provisions could also be made for certain stressed sectors where demand needs to be revived. For example, vehicles are often purchased in March to avail of depreciation benefits, and this could be extended until June. For machinery purchases, accelerated depreciation could be provided for one year.

With the need to preserve export markets and prevent flight of buyers to other countries, it is important that export procedures be facilitative. One suggestion is to provide direct benefit transfers to all exporters as well as manufacturers of exported products, instead of issuing duty credit scrips. Input tax credit should be allowed for deposit of countervailing duty or special additional duty for regularisation of the advance authorisation/export promotion capital goods (EPCG) scheme. Also, export of alternate products should be allowed for fulfilment of export obligations.

A lot of cash is held up under goods and services tax (GST) payments. Interest rates under GST should be reduced and tax rebates can be introduced for making early GST payments in cash, which will be a win-win for both governments and industry. The accumulated input tax credit can be allowed to be utilised for payment of GST liability under reverse charge as well, which would help unlock cash. Further, all blocked electronic credit ledgers should be immediately unblocked until normalcy is restored in business operations.

There are several other inconveniences which changes in tax could address. In the medium term, simplicity of GST structure would go a long way towards easing the coming pain. There is need to converge GST rates to three slabs and also include some exempted sectors, such as fuel and alcohol, within the system. Some key sectors, such as health care, would benefit from being able to avail of input tax credit, which is currently not available to them due to non-applicability of GST.

These are extremely challenging times, and collective efforts by the government and industry would be required to bring the country back on track. It is important that Indian industry is encouraged to support the government in all possible ways to combat the Covid-19 pandemic.
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This article was first published in the Business Standard on May 09, 2020

The economic and human impact of the coronavirus pandemic has been unprecedented. To curb the spread of the Covid-19 outbreak, India has been in a lockdown since March 25. As majority of economic activity and business operations came to a halt, job losses were evident across the country, resulting in falling incomes and loss of livelihoods.

Thus, as the government prepares for a graded exit from the lockdown, protecting the workforce and their livelihoods by curbing the rising unemployment has to be accorded utmost priority as this will play a critical role in our economic recovery.

As business activity resumes, the government and the industry need to come together to work on some key aspects, such as health safety and precautionary measures, among others, to create a conducive work environment and encourage greater employment in the economy.

Labour shortage
While business operations for some essential services such as hospitals, pharmacies and food supplies continued through the lockdown and gradually resumed in other sectors such as construction and manufacturing, all sectors continue to face considerable labour shortage.

Migrant workers residing in shelter homes or available locally near the industrial belts may be mapped and deployed to the nearest factories. This,in turn,will ensure that workers do not need to travel far from their homes and will help to restore incomes.

Such a strategy will require coordinated action from both central and state governments along with trade unions. State governments would be responsible for the mobilisation of workers along with the local district administration for facilitating movement of migrant workers, while ensuring their accommodation, commute, food and other basic needs.

As businesses are hit with declining revenues, to reduce the financial burden of organisations, the ministry of labour and employment may consider the extension of provident fund contribution date from the current 30 days to 60 days for the months of March, April and May.

While the EPFO has extended the date to May 15, 2020, it is suggested that this be further extended for a period of 30 days, given the extension of the lockdown period and the delays in resumption of revenue generating activities.

Additionally, it is recommended that the government could contribute 3.25 per cent of the employers’ and 0.75 per cent of the employees’ share of monthly ESIC contributions for the next three months, or relax the contributions, for three months. This will enable industries to sustain their business activities by maintaining cash flows.

We have also requested for the extension of the benefits under the Pradhan Mantri Garib Kalyan Yojana (PMGKY) to more establishments, which, at present, has a very limited impact as it is only eligible for establishments employing up to 100 employees, with 90 per cent of the employees earning wages less than Rs 15,000 per month.

It is recommended that the scheme be extended for an organisation having 50-60 per cent of the workforce earning up to Rs 25,000 per month. This will expand the benefits of the scheme to others, specifically the MSMEs.

Scheme rethought
During the lockdown, the government had issued various labour advisories under the Disaster Management Act, such as prohibiting employers from any wage reduction, layoffs and retrenchment of workers etc.
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With private establishments now permitted to resume operations, it is requested that the applicability of the said Act be removed for industry while labour laws take precedence. The temporary relaxations and relief measures announced by the government should continue to be available for the employers for them to resume and sustain business operations.

A related suggestion is the further review of labour codes, in line with the government’s initiative towards greater simplification and rationalisation of various labour laws through codification, with a view to enable greater ease of doing business and encourage entrepreneurship.

To encourage workers to come back to work, it is suggested that EPFO and ESIC take up massive campaigns and draw up a communication strategy for informing workers to re-join workplaces. A circular/guideline may be issued from the ministry to direct workers to join work or otherwise be subject to action taken.

The government may also consider restarting the Pradhan Mantri RojgarPrasthan Yojana to encourage organisations to retain job offers and promote fresh employment. The scheme has dual benefits of providing social security to workers and encouraging employment by incentivising employers to hire new workers.

With only 33 per cent of the labour force allowed to work to ensure social distancing, productivity of enterprises might be adversely impacted. It is, therefore, suggested that normal working hours of employees across sectors may be increased by four hours every day. Workers would be paid in proportion to the normal wages for working overtime and workers’ consent must be taken for the same.

Recommendations related to health and workplace safety include availability of industry specific standard operating procedures on websites, redesigning entire supply chain process for preventing the spread of the virus, and ensuring availability of resources for maintaining quality of personal protective equipment (PPE)/sanitisation for MSMEs, among others.

Job retention
To allow commercial establishments in the services sector to retain maximum workforce, it is requested that the provisions of layoff under the Industrial Dispute Act be extended as a job retention measure for workers having no work. This will allow such workers to continue to be on the company payroll during the layoff period at reduced wages while getting access to statutory benefits such as ESIC and PF.

With all enterprises facing worker shortages while workers too face job losses, a combined effort alone can best arrest the ravages of the Coronavirus on the economy.
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This article was first published in The Telegraph on May 11, 2020

​The world is grappling with the COVID-19 outbreak. The conundrum, however, has been safeguarding lives while ensuring economic balance. The manufacturing units, supply-value chains, MSMEs, the hospitality sector, and other critical sectors are struggling to find a strong ground to recuperate from the huge economic loss the outbreak has brought.  By the end of the third phase of the lockdown, we would have lost almost two months of industrial output, roughly equivalent to 8% of GDP a month. Therefore, the industry, especially the MSMEs, workers, and people from the lowest strata of the society are in dire need of a substantive and immediate stimulus package from the government.

MSMEs are the backbone of the Indian economy and are the worst-hit sectors. CII recommends a credit protection scheme for MSMEs, whereby 60-70% of the loan should be guaranteed by the government i.e. if the borrower defaults, the government should repay the bank up to the amount it has guaranteed, so the risk to the lender is limited. The allocation for this guarantee can be kept at Rs 2 lakh crore, though this may not entirely be utilised. MSMEs also are suffering because of the delayed payments, which are in the range of Rs 6 lakh crore. The outstanding payments should be made on an urgent basis to help MSMEs sail through the crisis.

CII has also suggested the creation of a fund or SPV with a corpus of Rs 1.4-1.6 lakh Crore, which will subscribe to NCDs/Bonds of corporates rated A and above. The fund can be seeded by the Government contributing a corpus of Rs 50,000 crore, with further investments of Rs 40,000-50,000 crore from banks and the remaining Rs 50,000-60,000 crore by financial institutions. This will provide adequate liquidity to the industry, particularly the stressed sectors such as aviation, tourism, and hospitality.
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Building public infrastructure could boost demand and create jobs. Rs 4 Lakh Crore could be demarcated for the purpose wherein private investors and investment funds could be roped-in to increase the size of the investment. To begin with, the fund could be utilised for pending projects that would immediately enhance productivity.
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CII has sought an allocation of Rs 2 lakh crore to be earmarked for bailing out state-run electricity distribution companies that have been accumulating losses. The banks are also at a higher risk of running into an economic crisis as  their current exposure to the private sector, including MSMEs, stands at Rs 29.05 lakh crore. Therefore, CII has recommended for recapitalising the banks with an allocation of Rs 2 lakh crores to manage any surge in NPAs.

With jobs intact, the spending capacity and demand will also remain intact. In addition, the government must boost spending on infrastructure and MGNREGA

Usually economic growth drives job growth, as jobs and livelihoods are an outcome of economic activity. I believe that the Covid pandemic which has brought economies to a virtual standstill, with jobs and livelihoods amongst its many victims, has turned this equation on its head. Investing in saving jobs and livelihoods now, can be a good insurance policy for our ability to put the country back on a high growth trajectory, quickly.
As India comes out of the lockdown, and economic activity resumes, an important part of the recovery process would be to have consumers available for the goods and services produced. This is possible only if jobs and livelihoods are preserved in the interim recovery period of 3-6 months. With jobs intact, the spending capacity remains intact and so does the demand, speeding up the economic recovery.

The government has a key role to play here. It must come forward and provide wage support to enterprises to mitigate job losses. CII suggests that banks provide additional working capital limits, equivalent to April-June wage bill of the borrowers, backed by a government guarantee, at 4-5 per cent, with a refinance guarantee from the RBI, to all enterprises.

In addition, MSMEs could be extended wage support through ESIC as well. Utilising the ESIC funds under Rajiv Gandhi Shramik Kalyan Yojana and Atal Beemit Vyakti Kalyan Yojana a corpus could be created to provide additional liquidity to MSMEs for meeting their wage liabilities.

Generating employment
Higher government spending on infrastructure is another important step for generating employment, especially in the unorganised sector, through construction activity. The National Infrastructure Pipeline, with projects worth ₹102 lakh crore, to be completed over five years starting FY20, should be front-loaded. The higher spending could be met by increasing the fiscal deficit by a margin of 0.25-0.5 per cent, as infrastructure is a productivity enhancing expenditure, and has an overall multiplier effect on the economy.

Construction sector is the second largest employer after agriculture. Out of a total estimated workforce of 500 million, about 60 million is estimated to be in the construction sector. It would be safe to assume that 90-95 per cent of these would be migrant workforce from rural areas in informal employment. Building infrastructure will recreate many of the jobs lost to the aftermath of the Covid lockdown, in this sector.

Greater expenditure on MGNREGA could be another tool to generate employment in the immediate term. CII suggests an additional spending of ₹6,000 crore, about 10 per cent of the FY21 Budget, on MGNREGA, over and above the increase in expenditure due to increase in MGNREGA wages under the Pradhan Mantri Garib Kalyan Yojana.

Labour reforms
The Prime Minister has been emphasising on reforms to enable India to leverage the opportunities that a post-Covid world is likely to present, especially in the manufacturing and export sectors. As India prepares to pitch for attracting large foreign investments, it is important to focus on labour reforms. The issue of jobs and employment, is no stranger to India. Labour reforms will help unlock the employment generating potential of Indian industry.

In additional to the traditional approach to labour reforms, Covid-19 has highlighted the importance of a few other dimensions of labour engagement that need attention.

One of the key challenges that industry is facing is that of getting the migrant workers back to work. It is both an issue of the willingness of the workers to come back and the logistics issues involved. Pandemics can strike in future too. There could be a second wave of Covid itself.

Housing, skill mapping
A long-term solution could be to create worker housing and other amenities in and around India’s industrial clusters to minimise the disruptions to the industrial activity. Some of this can be created through public-private partnership and some by the Central and State governments as part of their plans for creating industrial infrastructure.

A skill-mapping study of the returning migrant workforce can be conducted to try and place them within the States itself. In fact, skill development should become an integral part of the planning for economic growth and attracting investments so as to ensure that as much skills as possible are available to industry locally. Industry may also have to look at locating closer to where the workforce is, for their fresh investments.

Workers at their end should be willing to invest time and effort in upgrading their skills, to be able to meet industry’s demand for better skills and higher productivity.
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This article was first published in The Hindu BusinessLine on May 06, 2020

Confederation of Indian Industry (CII) poll of about 100 CEOs conducted on May 4 has revealed that most of them expect the economy to contract this year. As per an earlier poll, one-third of firms expect their revenues to contract more than 40% this year. Almost half of those surveyed felt that it would take more than a year to achieve economic normalcy post-lockdown.

GoI’s May 1 decision to extend lockdown from May 4 by two more weeks, with further relaxations in places, is welcome, as it provides for a safe and calibrated opening of the economy while also containing Covid-19’s spread. This also allows governments both at the Centre and states additional time to build necessary medical capacity required, in case there is a spike in the number of Covid-19 cases. Under the new guidelines, all industrial activities in rural areas are permitted, while it is restricted in urban areas to specified areas like industrial estates, special economic zones (SEZs), export oriented units (EOUs) and industrial townships with access to control.

GoI has also divided districts into red, orange and green zones. Economic activities in red, and especially containment, zones continue to be restricted.
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The guidelines leave out large segments of economic activities not located in industrial sectors. As a result, this does not cover many business units, including MSMEs, belonging to unorganised sectors.

Providing financial stability to these business units is of critical importance. A focused strategy needed to minimise the adverse impacts of the lockdown without compromising the efforts to restrict the contagion.

The exit strategy should focus on districts with heavy presence of industrial and economic activities, or industrial clusters. The top 100-150 industrial districts could be identified and classified, based on their contribution to the national economy, presence of industrial clusters, and number of registered enterprises.

Second, the focus should be on restarting all economic activities in all parts of an economic district — including in containment zones — with all necessary safety measures in place. The classification of zones into containment zones, orange zones and green zones could be done on the basis of safety precautions required. These zones could be marked in terms of concentric circles around the hotspot.

Identified industrial districts would require a separate working protocol and monitoring mechanism for business operations under various zones. Guidelines pertaining to movement of people and vehicles, sanitisation procedures, door-to-door testing, health and social distancing protocols, etc, should be strictly followed in containment zones.

Given the economic significance of these industrial districts, more should be spent in taking measures to contain the spread of Covid-19 — e.g., free distribution of personal protective equipment (PPE), masks, close monitoring, etc. The benefits from the resumption of economic activities in such districts will hopefully outweigh the additional costs incurred on protective measures for containing the pandemic.

Third, all business activities — essential or non-essential, within specified industrial zones or outside of them — should be restarted in urban areas. Standalone facilities or industrial clusters that are not notified should be permitted to open up at the earliest. This would also enable supply chains to operate smoothly across the country.

Real-time availability of data on all types of zones within industrial districts can help businesses plan better. It is also important to permit public transport for workers and self-employed people with requisite precautions, so that they can travel to work. Standard operating procedures for workplaces and establishments in case of Covid-positive cases are available to avert a start-and-stop situation.

Focusing on the reviving industrial districts may reduce potential loss of industrial activity by around 50%. This, in turn, could provide relief to the national economy, along with providing financial sustainability to business units, preserving livelihoods and bringing relief to all workers.
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 This article was first published in The Economic Times on May 04, 2020