On economic measures during COVID-19

The government needs to take measures to give an immediate push to businesses that are struggling to survive while also generating employment
Express Illustration
Express Illustration

The second Covid-19 wave that hit India in April and May created havoc on the health front. What was not foreseen, at first, was that prolonged lockdowns would again be imposed by different states. This was done with the twin goal of curbing virus spread and also for buying time to build proper health infrastructure. While the economy was still reviving and the businesses, especially the small and medium enterprises (SMEs), were struggling to make good the loss suffered during 2020 due to the pandemic, the second wave came and hit them harder. 

SMEs are a significant employment generator in a labour-intensive economy like India and also contribute immensely to the nation’s GDP. It was imperative to mold economic policies according to the needs of the stressed businesses. Such businesses either needed a viable ‘out’ of the losses suffered during both the waves or alternatively, they required a push to successfully come out of the precarious situation created by the lockdown. Luckily, the prevalent view of the regulators and government is to not extend the suspension of fresh filing of cases under the Insolvency and Bankruptcy Code, 2016, which had been criticised on several grounds when it was thought to be a fit measure during the first wave. One of the main reasons was that the objective of the Code was ‘resolution of debts’; and liquidation of businesses is only ordered after there is no possibility that the business would resolve its debts. Therefore, this step actually deprived the stressed businesses, which would otherwise be viable, from successful resolution of debts. Taking a step back from this policy measure is a welcome move.

The benefits of the measures announced during the first wave have mostly been extended by the regulators under various schemes. The Reserve Bank of India, in a slew of measures undertaken during the past few months, has targeted its efforts to lessen the impact on the health sector and towards the revival of the economy. Small Finance Banks have been given an expanded credit line so that they can extend fresh lending to small businesses. Moreover, those that did not avail the benefit under the restructuring of loans scheme earlier were allowed to do so in the second set of measures.

In another noteworthy step last year that was continued till March this year, the government, to ease out the burden on businesses, had introduced the Companies Fresh Start Scheme (CFSS). The deadlines for filing of documentation had been extended in almost all sectors but the feature that was less talked about was the immunity from prosecution for delay in filing of returns. Under the scheme, a nominal fee was charged for filing of the form. The exemption under the scheme specifically related only to the penalty that may be imposed during the time of delay. The business entity would be immune from any prosecution for six months from the last date of CFSS 2020.

With the Indian economy still grappling with the ongoing crisis, it remains to be seen what could give an immediate push to the businesses that are struggling to survive whilst maintaining and even further generating employment. The Make in India policies will perhaps become a catalyst in this. It is also important to take note of the sectoral impact and create targeted policies, especially where the big industries could make arrangements to extend financial and strategic support to the MSMEs. Under the various government schemes such as the Aatma Nirbhar Package and Credit Guarantee Fund Trust for Micro and Small Enterprises under UDAAN, the government is carrying out its function in phases. 

The hospitality industry in India is one of the sectors hit most severely, so much so that even the big players are shutting down their operations. The biggest example in recent times is that of the closure of Hyatt Regency in Mumbai. The ripple effect of such closures can also be felt in the manufacturing sector, which has links to the functioning of the hospitality and tourism industry. Consequently, a set of targeted measures towards this sector would not only be necessary but are also required to be taken promptly. This is extremely difficult till the time there are high numbers of Covid-19 cases. The CFSS scheme was a welcome step and perhaps a relaxation of other compliances would also make it easier for the businesses to continue to sustain during these tough times.
 

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