When the second phase of the lockdown ends on 3rd May, it will have been 40 days since the lockdown was announced. The economic cost continues to mount, although the lockdown has helped flatten the COVID-19 curve.
Within services, the majority of trade, transportation and hospitality remains closed, while financial, IT and government services remain partially operational. Even in the power sector, which is permitted to operate, significant reduction in demand owing to lockdown is having an adverse impact.
The chance of a significant revival in investment activity is unlikely since capacity utilization levels may remain suboptimal. Consumption demand is also not likely to pick up noticeably since people’s incomes have been impacted.
On the external front, as economies across the globe continue to struggle with the pandemic, global trade may decline by 13 to 32 per cent in 2020, as estimated by the World Trade Organisation.
This will lead to disruption in supply chains, slow pick-up in investment activity, labour shortages in the short-run and muted consumption demand on account of reduced household incomes.
In the optimistic scenario, which envisages a faster pick-up post the lockdown period, GDP is forecasted to register a growth of 1.5 per cent in the best case.
Source: CII Research estimates
CII has also suggested additional working capital limits to be provided by banks, equivalent to April-June wage bill of the borrowers, backed by a Government guarantee, at 4-5% interest.
In addition, the CII paper has suggested the creation of a fund or SPV with a corpus of Rs 1.5 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 10,000-20,000 crore, with further investments from banks and financial institutions such as LIC, PFC, EPF, NIIF, IIFCL et al. This will limit Government exposure while providing adequate liquidity to industry.
With these measures in place, it is hoped that decline in the GDP growth rate would be contained.
Click here to read the CII Report on – A Plan for Economic Recovery