Collapse in economic activity over last few weeks due to COVID-19, substantial govt package needed: FICCI survey

A survey on the coronavirus impact on the Indian economy has revealed that 72% of people believe COVID-19 is having a ‘high to very high’ level of impact on their business. Besides, a large number of respondents agree that unless a substantive economic package is announced by the government immediately, permanent impairment of a large section of the industry could be seen. 

The nationwide survey of businesses was jointly conducted by the Federation of Indian Chambers of Commerce & Industry (FICCI) and Dhruva Advisors over the last week. 

The nationwide lockdown over coronavirus began on March 25, ceasing almost all non-essential business activities across the country. The lockdown will continue at least till May 3. 

According to the findings of the survey, almost 72% of the respondents to the ‘FICCI–Dhruva survey’ have reported that COVID-19 is having a ‘high to very high’ level of impact on their business. Further, a substantial majority of the respondents do not foresee a positive demand outlook for their business in this fiscal, with 70% of the surveyed firms expecting degrowth in sales in the fiscal year 2020-21. 

A vast majority also foresee a reduction in their business cashflows and company’s order book. The survey clearly highlights that unless a substantive economic package is announced by the government immediately, we could see a permanent impairment of a large section of the industry, which may lose the opportunity to come back to life again, FICCI said in a press release along with the survey. 

Jobs are also at risk over the coming months as nearly three-fourths of the surveyed firms said that they may look at some reduction in manpower in their respective companies, it said, 

The survey was conducted to elicit how enterprises are getting impacted in terms of their business operations; what steps are being planned to maintain business continuity; what is their outlook for business in the FY 2021 and what are their expectations from the government in this hour of crisis. The survey saw participation from almost 380 companies from across sectors and has thrown up some very important results and insights that should be useful for the policymakers as they plan for the next steps of their integrated approach to support Indian industry.

Commenting on the findings of the survey, Dr Sangita Reddy, President, FICCI said, “The COVID-19 pandemic is causing deep economic harm and could reverse the gains made in the industrial economy over many decades. There is a need to render immediate and sizable support to industry to protect people, jobs, and enterprises. Industry members are reeling under severe financial stress and are in urgent need of ample liquidity to ensure business continuity."

"We are hopeful that the government will introduce a series of measures in quick succession to support the demand to ensure business continuity. This would be a confidence booster and we hope sentiment will improve following the economic package,” she said.

Mr Dinesh Kanabar, CEO, Dhruva Advisors said, “The broad-based survey shows the deep impact that COVID-19 is likely to leave on the Indian economy in the short to medium term. Clearly, the plans prepared by businesses on fund-raising, investments and expansion are being pushed back."

"Businesses will focus on cost optimisation and supply chain management. There is a significant expectation from the Government for a financial stimulus and providing liquidity, including by way of tax refunds and cheaper credit, so that the economy returns to normalcy faster,” he added. 

The other notable findings the survey has thrown up includes the impact COVID-19 has had on companies’ expansion plans. The findings show that in respect of approved expansion plans, 61% expect to defer such expansions for a period upto 6 or 12 months, while 33% expect to defer approved expansion plans for more than 12 months. Further, while 60% of the surveyed firms have deferred their fund-raising plans for the next 6-12 months, nearly 25% of the firms have shelved the same.

With domestic demand plummeting to record low levels, companies were hoping that exports may provide an outlet for them to energise growth. While 43% of the surveyed firms reported that they do not foresee an impact on exports, nearly 34% said that exports would take a hit by more than 10%.

As companies battle the financing constraints, all measures have been placed on the table to optimize their costs. Survey results highlight that the cost optimization measures being considered by firms include manpower rationalization, salary rationalization (especially at senior and middle management-level), deferment of appraisals, increments and bonuses, reduction in discretionary expenses and freezing recruitments.

Nearly 69% of the respondents believe additional measures or packages should be announced by the government on account of COVID-19 impact. The key expectations from the government is for tax reliefs and incentives, ease of compliances, and demand creation. Specific support sought from the government and central bank include measures like increase in MEIS/ SEIS rates, releasing pending payments - tax refunds, arbitration awards, additional working capital from banks without collateral to enable business continuity, further cuts in lending rates.