Post-Lockdown Strategy for Economic Revival

An exclusive article S RAVI, FCA, Managing Partner Ravi Rajan and Co Chartered Accountants Independent Director in various Companies, Former Chairman BSE

Post-COVID 19 economies would usher in a paradigm shift with new protocols and policies. Current businesses will review, revisit and reset the ways of transaction and trade. IMF has estimated a V shape recovery for India in 2021-22 with GDP of 7.4%. COVID 19 has created economic havoc and disrupted the economic ecosystem much worse than a Wartime or a financial crisis could do.

Industry professionals should deliberate on taking steps to secure, sustain and ensure growth. Ensuring financial liquidity, working capital, retaining jobs and honour financial commitments. Additionally, utilising digital platforms for connecting, innovation and adaptation to the new business mechanisms. The industry will face viability in operations as a result of the slow pace of growth, hence the industries should be able to transform itself.

The Government has given multiple stimulus packages addressing both fiscal and monetary. Further support may be initiated by reducing tax burdens, lowering GST rate, deferring GST, tax holidays and SOPS in most affected sectors, creation of funds can be considered for immediate credit in certain industries. 

Due to restrictions placed, the primary impact on a global scale pertains to trade between countries, thus there should be a close monitoring of imports, exports and forex reserves.

Following is the Stimulus packages compared to GDP% and Fiscal balance % to GDP-

IMPORTS

The Government should consider to support domestic manufacturers of the companies by providing capital to expand operations and cover for the supply gap from overseas.

There was a drop of nearly 16% in total imports during the first three weeks of March which was mainly driven by decreased imports of precious & semi-precious stones, gold and sharp drop in crude oil prices. The five key import items that are heavily dependent on China are- electrical machinery, machinery, and mechanical appliances, plastics, organic chemicals, optical and surgical instruments, all these alone account for 18 per cent of India's total imports. Also, India's biggest import source country for iron and steel. Currently, India imports almost 70% of its bulk drugs and intermediates - the chemicals that make finished drug work from China, many of which are sourced from Hubei province -the origin of the pathogen. Of the total $3.56 billion imports of such products in 2018-19, China’s share was $2.4 billion, according to information presented in the Indian parliament.

The Government should consider to support domestic manufacturers of the companies by providing capital to expand operations and cover for the supply gap from overseas. Hereby providing skill set for speeding up the scale of domestic companies supplies. This measure will reduce the trade deficit and conserve our forex reserves.

EXPORTS

India’s major pharmaceuticals companies such as Abbot Industries, Zydus Cadila and Wallace have been given orders by the Government to produce hydroxychloroquine sulphate in bulk quantities to meet domestic demand and potentially the increased overseas from other countries as well.

Muted exports could also have major effect on-off India's trade bill. India's exports rose for the first time in seven months in February, up by 2.9 per cent and driven by growth in shipments of sectors such as petroleum, engineering and chemicals. However, India's exports to China only account for 5 per cent of India's total exports. Although, certain commodities like organic chemicals and cotton could be severely affected. The country also lifted the ban on the export of hydroxychloroquine sulphate, the drug that is being touted around the world by leaders as an untested cure for the virus. It has received orders from around 30 countries for this drug.

After the rapid spread of the virus, India banned exports of sanitisers and ventilators including all artificial respiratory devices anticipating a spike in local demand. It had initially also put in place a ban on the export of hydroxychloroquine sulphate to meet its own domestic demand as a priority. India, being the among the largest manufacturer of vaccines and generic drugs in the world, could see its pharma production ramped up further, looking at how quickly the novel coronavirus is spreading.

The government continues to explore the option of asking automakers to manufacture medical equipment’s in its manufacturing units, which have been lying idle since the lockdown was announced. India’s largest automakers including Mahindra, Tata Motors, Hyundai and Maruti Suzuki have held discussions with the Government about manufacturing ventilators and other respiratory equipment on a large scale. They are in the process of tying up with ventilators manufacturers to gain some expertise into this field. India’s major pharmaceuticals companies such as Abbot Industries, Zydus Cadila and Wallace have been given orders by the Government to produce hydroxychloroquine sulphate in bulk quantities to meet domestic demand and potentially the increased overseas from other countries as well.