UNCTAD estimates economic impact of Covid-19 at $1 trillion
By Rajiv Memani & Sudhir Kapadia
UN Conference on Trade and Development (Unctad) estimates the economic impact of Covid-19 at a minimum of $1 trillion in 2020. India’s immediate measures are crucial, and the new economic taskforce is a step in that direction. Britain unveiled a £330 billion (about $382 billion) stimulus package, and the US has committed $1 trillion, in addition to $50 billion in financial aid to states, cities and territories.
Germany announced support of $610 billion, while France has guaranteed loans of $335 billion, and $50 billion worth of other measures. Canada, too, has announced a $56 billion aid package. Countries are giving priority to providing relief and support over fiscal discipline. India, too, needs to follow suit. Interest rates have also been aggressively cut by several countries, with Britain and Canada lowering rates by 0.5%. Considering the higher interest rates in India, RBI should consider an interest-rate cut of 50 basis points (bps).
Even as we await finance minister Nirmala Sitharaman to unveil GoI’s Covid-19 mitigation economic package, the stimulus could be oriented towards the poor, unemployed and vulnerable sections such as contractual daily wage labourers, construction workers, street vendors, etc, as well as MSMEs. An income support of about Rs 7,500 a month could be credited to the bank accounts of low-income and informal workers for three months.
For the unorganised sector, cash transfers to subscribers of the Pradhan Mantri Shram Yogi Maan-Dhan (PMSYM) scheme, which provides social cover to 43 lakh unorganised workers, could be considered. Households could be supported by doubling of direct cash transfer of LPG subsidy. For MSMEs, GoI should immediately release outstanding payments, pending tax refunds and export incentives, and announce a moratorium in loan repayments for small industrial units, transport operators, tourism, hotel and restaurants, and residential mortgages for low-cost housing.
As on January 31, the outstanding loan these sectors owe to scheduled banks was about Rs 11 trillion. The banks could allow deferment of repayment of loans for these severely impacted sectors by six months. For all other businesses, a threemonth moratorium on loans repayment will improve their ability for subsequent repayment and sustaining jobs. GoI-RBI may need to provide a temporary line of credit to the financial institutions for this purpose.
Further, GoI-RBI should ensure adequate liquidity and enable the availability of low-cost, working capital loans to affected sectors through credit guarantees and enhanced interest subvention. If long-pending payments from central and state governments are not released immediately, it may lead to unnecessary consequences for businesses, including job losses.
From a financial reporting standpoint, aspects such as impairment of assets, and going concern could be viewed more liberally for the impacted period. Sebi making delisting and buyback simpler will help provide further stability. GoI should constitute smaller industry-specific working groups to look into providing immediate measures for airlines, shipping, exporters, hotel and tourism.
For large employment-providers such as textiles and infrastructure, specific packages for loan deferrals and wage subsidies should be considered. APrime Minister Covid Fund can be set up for expanding public health expenditure. Corporations should be allowed to transfer funds allocated for CSR to this fund. With the need for social distancing, the ministry of corporate affairs (MCA) and Sebi have allowed some temporary procedural relaxations.
Like some other countries, India can provide deferrals in tax filing and payments. Also, interest charged for delays should be significantly lower at about 50% of the current normal interest rate, which converges with the rate of 6% given on refunds. As normalcy returns, more sectorspecific and tax relief measures will be needed.
For exporters, GoI should provide certainty and quickly announce details of the new Remission of Duties and Taxes on Exported Products policy. Also, it should continue with the Service Exports from India Scheme (SEIS). Similarly, to help hotels and tourism, as a temporary measure, reduced GST rates of 5% and 12% can be considered. The aviation sector stands to gain if aviation turbine fuel (ATF) is brought under GST to reduce fuel costs.
To kickstart fund-raising from the capital market, incentives and deductions should be considered for companies to raise capital through initial public offerings (IPOs). Also, caps on deduction for interest on housing loans should be removed. These are extraordinary times where speed is of the essence. Let best not be the enemy of good. It’s time to start providing immediate support measures to arrest the contagion impact.
Memani & Kapadia are CEO and national tax leader, EY India, respectively