Need for policy intervention to minimise impact of COVID-19 on economy: FICCI

There is an urgent need to take immediate steps to contain the spread of coronavirus and address key pain areas of the industry which can help in minimising its impact on Indian economy and businesses, the Federation of Indian Chambers of Commerce and Industry (FICCI) said on Friday.

A combination of monetary, fiscal and financial market measures is needed to help the businesses and people cope with the crisis, it said in a report titled 'Impact of COVID-19 on Indian Economy.'

"The outbreak has presented fresh challenges for the Indian economy now, causing a severe disruptive impact on both demand and supply-side elements which has the potential to derail India's growth story," said the report.

 

The report contains key findings of a recent survey which shows that besides the direct impact on demand and supply of goods and services, businesses are also facing reduced cash flows due to slowing economic activity.

This, in turn, is having an impact on all payments including to those for employees, interest, loan repayments and taxes.

According to the survey, a significant 53 per cent of Indian businesses indicate the marked impact of coronavirus pandemic on business operations even at early stages.

The pandemic has significantly impacted the cash flow at organisations with almost 80 per cent reporting a decrease in cash flow. It has had a major impact on the supply chains as more than 60 per cent respondents indicated that their supply chains were affected.

The companies also highlighted that they are closely monitoring the situation and expect the impact of the pandemic on the supply chain to worsen further. Nearly 42 per cent of the respondents feel that it could take up to three months for normalcy to return.

"The government and Reserve Bank of India (RBI) need to support the industry and economy at this juncture by bringing down the cost of funds further through a reduction in policy rates (say by about 100 basis points)," said the report.

Besides, steps should be taken to maintain liquidity at surplus levels and provide special liquidity support for any companies, non-banking finance companies and banks that come under strain due to intensifying risk aversion in financial markets or due to large demand shock.

Easier credit facilities must be enabled to effected sections of the businesses that operate on very short financial cycles and will be forced to stop production and trading for financial wants.

The government and central bank should direct banks not to stop disbursement of loans under the expectation of project delays due to COVID-19.

Credit limits for all regular banking accounts should be increased by 25 per cent across the board. Furthermore, flexibility needs to be given to the banking system to reschedule payment terms without the need for provisioning, said the report.