Covid-Hit Industry Needs Policy Tonic

The rate cuts will not reverse demand contraction. Export incentives, tax breaks and health sector support are called for

- R Ganapathi

Prime Minister Narendra Modi needs to be complimented for taking stringent measures to control the spread of Coronavirus. The government’s first economic stimulus package of relief measures for the most vulnerable sections of society for three months is welcome.

However, the cost of the Covid-19 lockdown is pegged at around $120 billion (around ₹ lakh crore) or 4 per cent of the GDP, and a sharp cut in growth estimates is predicted.

It is now certain that the world will enter into a significant recession and India is not likely to “remain decoupled”. Further, 90 per cent of India’s workforce is employed in the unorganised sector and this lockdown will effectively put over 45 million migrants living off daily earnings out of work. Employment in sectors like construction projects, mobility services, housekeeping, and other informal areas will come to a sudden halt.

The manufacturing sector faces a triple challenge. First, there are going to be serious supply chain distortions, not just when dealing with foreign parties, but also the domestic industry. Second, sectors like automobiles, pharmaceuticals, electronics, chemical products, etc., are facing an imminent raw material and component shortage. Third, the shutdown and resulting loss of revenue is certain to cause a number of bankruptcies and closures, especially in the MSME sector with corresponding disruption to supply chains.

On the demand side, several industries would get impacted starting with the consumer durable goods and will cascade to other intermediate goods and basic goods.