All things Money Thread


View: Coronavirus could be India's black swan event
Modi demonstrated leadership by announcing a lockdown and 3 packages to help citizens & businesses to cope.
Last Updated: Apr 10, 2020, 10.09 PM IST

The PM has demonstrated world recognised leadership by announcing a comprehensive 21 day lockdown and three packages to enable citizens and businesses to cope.

Going forward our country will need nine bridges to enable us to emerge out of this crisis as world leaders.

The nine bridges are:
  • Further fiscal stimulus
  • Further monetary policy interventions and forbearance
  • Tracing, testing and treating our COVID-19 affected citizens
  • Providing sustenance to our severely disadvantaged daily wage earners and micro businesses
  • Keeping our MSME and Export engines firing
  • Providing relief to most distressed industries
  • Encouraging and providing better hygiene and immunity among our vast population
  • Recasting our health and education infrastructure
  • Establishing India as the innovation capital of the world
  • Below, we spell out some of these ideas in detail

Further Fiscal Stimulus
The Government has announced a Rs 1.7 lakh crore stimulus, which transfers cash using Direct Benefit transfer and delivers food to needy citizens.

Many countries have proposed a stronger stimulus. Germany and USA have proposed a package of 10% of GDP and Britain 15% of GDP. India can take its stimulus up to about 5% of GDP.

The time to rationalise GST rates to four- 0-5-12-18 is now. All encompassing GST, with no exemptions or composition and full offset of ITC will help revive large job-creators like construction, auto & logistics businesses.

Further, all direct taxes and corporate taxes also need to be rationalised and simplified to four rates i.e0-15-20-25, with dividends to be at 20%.

This should ultimately lead to a less litigated, tax determination driven, simple tax regime. Energies of businesses and professionals will be released for more productive purposes like building the startups to take on large risks. This proposal is revenue neutral.

A one time three month grant of a living allowance of Rs 1,500 per person per month to 45 crore migrant workers and micro enterprises may be directly transferred to their Jan Dhan or other bank accounts. This transfer may be supplemented by generous release of food grains to those who make a demand at any of the 5 lakh community kitchens that may be set up on a war footing. This will cost the exchequer Rs 2.75 lakh crore.

Immediate arrangements may be made to either let them restart work after being tested as being free of the COVID-19 infection or to get to their place of choice in their villages or other towns. Free transport may be provided for a period of 30 days for this purpose.

In villages a massive 3-D printed pucca homes initiative may be mounted with the support of MNREGA funds. This may perhaps be managed from the already allocated resources in the recently passed Union Budget.

Rehabilitation of about 10 crore persons back to their own home towns will de-congest cities. The small economies will blossom as a result of this much needed Human Resource availability.

Monetary policy interventions and forbearance
Reserve bank package just announced will provide liquidity of Rs 3.74 lakh crore through the Banking system. The economy is primed for a data-led financing paradigm based on cash flows and red flags picked out from pubic information already available. This is feasible on account of all the e-Governance and public registry-provisions that have been put in place.

RBI May immediately announce a comprehensive forbearance for 3 months on every loan at the choice of the lender in determining the NPA status of the loan. This will lead to confidence in lending and a revival of the animal spirits which will see a resurgence of micro and small enterprises adequately backed by technology and finance.

RBI may permit NABARD and SIDBI to offer a ‘GST Clawback Loan’. This may be calculated based on 70% of the GST paid in the last six months by an enterprise with turnover up to Rs 500 crore. The loan may carry interest @ 7.5% pa. Opt-ins may be estimated at Rs 4,20,000 cr. This may be on a two to three year loan with a 12 month moratorium on repayments. The capital base of the two institutions may be suitably enhanced and global loans with a near sovereign guarantee may be raised to fund this.

Fugitives and known offenders who are incarcerated may be brought back to the path of rectitude if they repay to the banking system the entire amounts misdirected.

The moral hazard in micro lending by state fiat preventing normal collections on agreed due dates must halt forthwith. A completely new climate of trust, integrity and commitment must be created.

Tracing testing and treating all COVID-19 affected citizens
In partnership with Global governments, India should put all available resources into extensive tracing of those who are identified as being at risk. The Arogya Setu is a commendable initiative in this regard.

The entire diagnostics industry must be co-opted into the effort of testing. PCR and NAT tests must be imported in quantity to test all new entrants to the country or those who are entering new geographic locations. Antibody tests may be used to keep the people just relieved from lock downs.

To restart livelihood, communities defined as an economic unit must be comprehensively tested to release the vast majority that is disease free to work. A phased approach to lifting the lockdown will be highly beneficial.

While lockouts are in place, and beyond the lifting of lockouts, testing must continue unabated. The COVID-19 test must become cheap and democratised to ensure universal coverage.

Treatment by our brave health professionals and our volunteers must proceed with full PPE which may be ordered at scale. 3-D printing of ventilators and testing equipment must be established in India so that the numbers available today can be multiplied as the demand emerges. All available stocks must be moved to hotspots on an urgent basis.

The making of masks may be assigned to women self help groups which are already producing them. Scale up can happen rapidly if technology and funding are made available immediately.

The Government, along with business, may launch a massive education campaign on television, e-learning platforms and through community lectures daily. This education must cover recognisable symptoms; what individuals should do if they are symptomatic; the nearest center to get tested at, isolated and treated; and the protocol that will be followed in the treatment.

India should launch a massive personal adult immunity enhancement programme. Plant extracts providing natural immunity, and alkaline water and food availability should be rapidly and ceaselessly increased.

India should become the world capital of clinical trials using AI-Ml, Analytics and Block chain technologies. Vaccines and drugs that are already successful in other parts of the world can be swiftly tested and distributed district wide. The risk perception of getting infected has to be reduced to reasonable levels. Work must restart in no more than 30 days from now.

Best practices on isolation, containment, treatment protocols, and slow-release should be shared widely. Governments, Pharma and vaccine manufacturers, hospitals, caregivers and patients will all have to come together shedding all past mindsets!

Swift permission to source critical APIs from alternative sources must be given. As production picks up, critical supplies, should be prioritised. Global trade restrictions should be eased to enhance ventilator quantities available to meet all needs.

Providing sustenance to our most disadvantaged
Migrant workers, out of job construction workers, unemployed youth and indeed every citizen seeking a meal must be provided cooked, healthy meals. For this the community kitchen infrastructure of the mid-day meal scheme may be scaled and deployed immediately. The entire stock of stored food grains amounting to about 60 million tonnes may be moved to the nearest districts from where they are currently stored. From there the PDS and the JAM trinity soft infrastructure may be multiplexed to ensure food is in reach of the hungry everywhere.

India cannot afford to allow our bountiful Rabi crop to go into disarray. Immediate and urgent imports of harvesters and deployment of rural available manpower must be planned to ensure a proper harvest. Silos and storage areas must be designated to garner surpluses. The MSP must be available to all farmers to prevent financial ruin. The only part of our economy that can deliver good growth is Agriculture. This opportunity must not be missed.

Keeping our MSME and export engines firing
MSMEs must receive sub-contracted orders for manufacturing testing equipment, ventilators and masks from the big manufacturing units that are currently beginning work. They also must be prepared to manufacture vaccines and medicines at scale. Current capacities and space must be quickly redeployed to make in India what the world desperately needs in large quantities today.

India should lead the establishment of a Multi sovereign war chest to deal with such events in the future with the right Global Governance mechanisms. This Multi sovereign fund may be a repository of technology, a platform for consolidation by lender and by domain and a provider of equity to the MSME sector. The tie in would be with the contributors to the fund to export badly short and required products at scale.

The rapid transfer of finance and a systematic M&A activity will strengthen this sector to be the real solid backbone of our manufacturing and export capabilities. As digitalisation takes root, accounting, compliance, information and governance practices will also be enhanced to global standards. This will ignite a genuine virtuous cycle.

Relief to our most affected sectors
A reset of the calendar by three months on loan, tax and other financial obligations will provide the window for these sectors to cope with the sudden collapse in demand. Platform based and data led fresh M&A and equity and debt provision will be necessary too.

Global technology and market development support will have to provided by the EXIM bank. Their capabilities can be dramatically valuable in the revival of these sectors.

Recasting our Education and health infrastructure
The GDP spend on health care and education will need to double at least. Resources will have to be found from subsidy reduction, fair taxation of all income and an optimisation of collection mechanisms. The next pandemic must not scare us into sacrificing work for life!

E-learning and the reach of education to every child must be enshrined in every budget. Equally, access to tele health, self awareness about health and symptoms, home testing and a much enhanced immunity and hygiene program will have to become embedded in the health infrastructure of the future.

India as the innovation capital of the world
Indians representing one sixth of the human race have a once in a lifetime opportunity to pivot to a new paradigm driven by converging exponential technolog.

All factories should have access to and embrace technologies that can provide gestalt growth by using additive manufacturing as opposed to the current subtractive practices.

Agriculture will transform by getting dispersed, hyper local and vertical. Soil-less and water light practices can rapidly be deployed.

Autonomous transport driven mobility, clean energy, advanced materials deployment and the use of automated last mile delivery using drones and robotics must be established. The entire way a smart city works should be redefined.

A comprehensive digitalisation of financial services and all record keeping should be instilled. This will pivot paying and spending habits to digital

The time to pivot, innovate and take the entire community along is now!

(The writer is a Chartered Accountant)

View: Coronavirus could be India's black swan event


Extension of nationwide lockdown will be a body blow for economy: RC Bhargava

He said the onus of creating demand in post-COVID 19 era rests on both the government and industry.

Rakesh Khar@rakeshkhar

RC Bhargava, Chairman of Maruti Suzuki India, the country's largest passenger carmaker, has strongly recommended resumption of economic activity and voiced his opposition at any further extension of the lockdown period beyond April 14.
In an exhaustive interview with Moneycontrol, he outlined the measures the government should take to recover from this massive setback and said the onus of creating demand in post-COVID 19 era rests on both the government and industry.
"Any blanket extension of lockout is not logically required. It was required to identify the hotspots. In 21 days, the hotspots must have already shown up. In rest of the country, start the economic activity but with caution and if there is an inadvertent violation, treat it as a hotspot and cordon it off. But don't shut down economic activity," Bhargava told Moneycontrol.

Asked to detail his plan of action for resumption of economic activity, he said: "I am saying that seal all the hotspots and then open the areas which are free of infection. In those areas, anyone who starts an economic activity should be legally compelled to take certain safeguards related to employees, vendors, transporters and dealers. Point here is that safeguards have to come into play for next few months."

In reply to another question on whether India Inc was ready to take up the challenge, he averred that there was no other option.
"Otherwise, if the industry is not found compliant, it should be penalised. People should be educated," he said.
Compliance will become much better, especially, if the Prime Minister says we are lifting the lockout but for your own sake and for nation's sake, this is what we have to do, prescribed Bhargava.
He asserted that Prime Minister Narendra Modi commands a unique respect among the citizens.
"I think it is quite unique because I have not seen this kind of rapport between a political leader and the people. Earlier, India's first Prime Minister, Jawahar Lal Nehru had it. We are in the same situation now. The common man will follow PM almost blindly now," he said.
Bhargava sees merit in people's trust in PM being actually put to good use.

"That everyone becomes an eye for the government to ensure safety measures are being implemented and complain about lack of compliance, if any, at economic entities across the country," he said.
Asked to draw a balance between looking after the poor and offering fiscal stimulus to the industry, Bhargava said, “Just giving money to the poor isn’t the solution. If required, it can be done for a short time, but it cannot be done for a long time. We need to start the economic activity, especially those economic activities that will create productive employment. Because when more people find work, less people will require financial support.”
He argued for a simultaneous government attention to the poor and the industry.
"The government, while looking after the poor, must simultaneously think about what needs to be done to revive the industry. You have to look at those industries that create employment. Employment doesn't mean only in factories but employment means activating it in the entire ecosystem," he opined.
Drawing his recipe for creating demand, Maruti Chairman outlined his two pronged agenda for the business and the government.
The industry, itself, has to look at all ways of cutting costs –top management pay cuts – are among good steps and should continue for longer period, personally I should say forever. And that money goes back into the company, because these are all overhead costs.
All measures which will improve productivity so that production costs can come down – travel, entertainment expenses, advertising budgets - should all come down. All these will help reduce cost of production. The demand creation is a function of the price for the customer, he explained.
Everybody must take it up as national duty to cut down cost of production to cheer up demand. Bhargava’s agenda for the government (Centre and States) is to look at seriously reducing taxes that enable reducing cost of acquisition. “On a small car, a customer today pays about 40 per cent as taxes. Demand creation is essential and demand creation is to be done by not giving doles to people but by reducing cost of acquisition. This is the real stimulus.”
He recalled that the RBI had already reduced the repo rate and increased the liquidity. “RBI has done its best. What other stimulus can government do except reduce taxes?”

Extension of nationwide lockdown will be a body blow for economy: RC Bhargava


Indian govt had $5.26 bn in outstanding loans from RBI in week to April 3
The central government had 504.77 billion rupees in outstanding loans in the previous week, according to the RBI's weekly statistical supplement.
Last Updated: Apr 10, 2020, 07.30 PM IST

BENGALURU: The Indian government had 400.08 billion rupees ($5.26 billion) in outstanding loans with the Reserve Bank of India (RBI) under ways and means advances in the week ended April 3, the central bank said on Friday.

The central government had 504.77 billion rupees in outstanding loans in the previous week, according to the RBI's weekly statistical supplement.

State governments had loans worth 28.28 billion rupees from the RBI in the week ended April 3, compared with 19.67 billion rupees in the previous week.

Indian govt had $5.26 bn in outstanding loans from RBI in week to April 3



Work from home: Only 0.2% IT sector workforce highly productive, says study

About 99.8 per cent of the workforce in the information technology sector is incapable of working from home, according to the study

BS Web Team & PTI
Last Updated at April 10, 2020 19:52 IST

Work from home

About 12.7 per cent of the IT workforce comprises employees who thrive on their social interactions and as a result, work from home is a challenge for them

Only 0.2 per cent workforce in the IT industry is highly productive while working from home, says a new study conducted amid the coronavirus lockdown, when most of companies are encouraging employees for working remotely.
About 99.8 per cent of the workforce in the information technology sector is incapable of working from home, according to the study by research-backed innovative venture SCIKEY MindMatch.

These 99.8 per cent of the workforce lack at least one of the qualities, including resistance to learning and exploring (95 per cent), lack in practical communication skills (65 per cent) and lack in planning and execution (71 per cent), it added.
“16.97 per cent of the employees are challenge-driven and such people should be given challenging tasks and can work seamlessly with minimum intervention,” the study said.
The research identified 17 per cent of employees as instruction-driven and need clear cut direction to deliver a task.
While engaging with these employees, especially under the remote working scenario, one should pay close attention to the details of the tasks assigned to them, it added.

The data revealed that 40.42 per cent of the IT workforce is logic-driven and in order to engage remotely with them becomes mandatory to assign them a task that is logic-driven and to answer their queries, no matter how small or how many.
They are pro at working alone, so remote working is not a challenge for people in the IT sector as long as they can clarify all their doubts corresponding to the task.
About 12.7 per cent of the IT workforce comprises employees who thrive on their social interactions and as a result, work from home is a challenge for them.
They do not fear the task but fear the lack of social interaction and to engage such a person remotely, a daily virtual communication becomes mandatory and a face to face video conferencing is definitely uplifting, it added.
The study is based on more than 10,000 inputs of jobseekers in the IT sector on the MindMatch assessment through the SCIKEY Talent Commerce Marketplace.

Work from home: Only 0.2% IT sector workforce highly productive, says study



India's retail king in BIG trouble
By Dev Chatterjee
April 09, 2020 12:38 IST

Though Kishore Biyani is selling stakes in group companies to pay off debt, a significant share price crash since January this year is making his task difficult.

A combination of high cost funds from private equities (PE), promoters pledging stakes and falling share prices of listed entities have put the Future group in a crisis.

Though promoter Kishore Biyani is selling stakes in group companies to pay off debt, a significant share price crash since January this year is making his task difficult.

“While it is good news that 80 per cent of the borrowings of holding companies are from PE firms, for which the collateral cover is much lower than funds from banks or mutual funds, the cost of funding can be very high,” said an analyst of Redd Intelligence.
A filing with the ministry of corporate affairs for a Rs 1,300-crore loan for these (promoter entities) has put pricing at an eye watering 26.5 per cent per annum over a four-year term, said the report.
Promoter entities had a total debt of Rs 11,970 crore with total pledge estimated at over 90 per cent by value across group companies.
Rating firm ICRA said it has received a communication from IDBI Trusteeship Services on April 3 that corporate guarantees on non-convertible debentures (NCDs) amounting to Rs 670 crore of Rural Fairprice Wholesale (RFWL), a 100 per cent subsidiary of Future Corporate Resources Private Limited (FCRPL), were invoked on March 27.
Also, FCRPL has not made the payment.
The matter is now sub-judice after the Future group objected to invocation of the pledge.
The ongoing shutdown of retail outlets due to the coronavirus (Covid-19) pandemic will further put pressure on the group as sales of operating companies fall, said analysts.
As the group tries to sell off its insurance arm to ease pressure on promoter entities, an insurance sector chief executive officer (CEO) said there are no takers in the current market.

Retail King of India
The present crisis faced by Biyani - known for making Big Bazaar a household brand name since early the 2000s - is the most serious.
This is the not the first time Biyani’s group is facing a debt crisis.
“Biyani is to India what the Walton family of Walmart is to the US.
"Biyani’s realised the potential of organised retail far before cash rich promoters like the Ambanis or the Birlas.
"No wonder, he is well known as Retail King of India,” said a Mumbai-based rival.
“But with debt out of control, this is perhaps his biggest test,” he added.
After tasting success with Big Bazaar, Biyani diversified into other businesses such as financial services, formal clothes retailing and insurance.
In 2012, Biyani sold his Pantaloon brand to Aditya Birla group for Rs 1,600 crore.
Pantaloon was the first brand started by Biyani way back in 1987.
The deal was to help Biyani reduce the group’s debt of Rs 7,850 crore.
Post-Pantaloon deal, Biyani sold several other businesses, including financial services, to Warburg Pincus, in 2012.
In 2013, the group decided to sell 51 per cent stake in its general insurance business to L&T for Rs 560 crore but the deal was called off a year later.
Subsequently, promoter companies started raising funds across various entities - leading to the present crisis.

Maze of companies
Biyani’s interest in holding companies are held through four major trusts.
The trusts own four holding companies, which include Future Capital Investment Private Limited (FCIPL), Central Departmental Stores Private Limited (CDSPL), FCRPL and Ryka Commercial Ventures Private Limited (RCVPL).
Future Corporate Resources was downgraded by rating agencies in March due to its high debt and falling financial metrics.
Among the holdcos, FCIPL, CDSPL and FCRPL are purely holding companies while RCVPL has an operating subsidiary Future Lifestyle Fashions.
According to Redd, the total founder group debt continued to rise from Rs 11,790 crore in March 2018 to Rs 11,970 crore in March 2019 despite monetisation efforts in the year ended March 2019.
An email sent to the Future group did not elicit any response.
In financial year 2020, the promoters raised Rs 4,600 crore.
Of this, Rs 1,750 crore was invested by Blackstone after it bought six per cent stake in Future Lifestyle Fashion.

Another Rs 1,430 crore was invested by US online retail giant Amazon in Future Coupon.
Of the proceeds, the group spent Rs 1,440 crore on Future Retail.
Photograph: PTI Photo

India's retail king in BIG trouble


'It's an opportunity for India'
By Reena Bhardwaj
April 09, 2020 10:08 IST

US-India Business Council President Nisha Biswal believes once the economic activity and demand resumes, India could hold the potential for diversification of supply chains and manufacturing.

IMAGE: The scene outside the RML Hospital in New Delhi as people line up to be tested for coronavirus. Photograph: Ravi Choudhary/PTI Photo.

While many analysts have raised a red flag on the economic impact of an extension of the 21-day lockdown in India due to the Covid-19 outbreak, an American business chamber said that businesses are “adapting” in ways they can to ensure the continuity of essential businesses.
The 21-day lockdown is set to end next week but several state leaders have called for an extension or only a partial lifting of restrictions, which they say is the only way to avoid a coronavirus epidemic that will be difficult to tackle.

US-India Business Council President Nisha Biswal, in an interview, told ANI that under the present circumstances, businesses are looking at boosting work-from-home capabilities and taking measures to allow safe operation of essential businesses and supply chains.

"We'll follow the decisions and guidance of government authorities on any extension of the social distancing measures in India. Judging by what is happening in the US, Europe, we anticipate and are prepared for these measures to be necessary for a while longer," Biswal told ANI.
She further added that a safe and sustainable availability of migrant labour to keep supplies flowing to the "at home" population will be important for a more enduring lockdown.
Biswal believes once the economic activity and demand resumes, India could hold the potential for diversification of supply chains and manufacturing.
"It's an opportunity for India to play a more robust role in the manufacturing of many different product lines in the near term," said Biswal.
Even as the immediate focus for the government is pandemic mitigation, Biswal said she was confident that India could be an attractive place for more production to be housed.
"Companies are increasingly thinking about diversifying their manufacturing and supply chain, not just to have it housed in one country but to think about more regional production," Biswal said.
The American Business chamber chief praised the steps taken by Prime Minister Narendra Modi. Biswal also added that the Government of India moved very quickly to announce the first round of economic measures that were geared towards supporting the most vulnerable, by expanding the social safety net and ensuring that people who are going without a paycheck are supported.
Going forward, the chamber has recommended a "second round" of measures to be put in place by the Government of India to support businesses.
"The second round of economic measures really should focus on what do businesses need to get through this time period. We suggested that the government should think about some strong stimulus measures that can really help keep Indian businesses afloat, through this time," Biswal added.
While lauding India's move on enforcing the 'Janata curfew", Biswal insisted that there is a need to look into the provision of providing some waivers to the BPO industry and services in India, which are providing crucial support to America's critical cell centres including hospitals, insurance and banking sectors. Also, in India, the service sector accounts for a huge per cent of India's GDP.
In order to maintain business continuity, India needs to help companies adapt their operations so that they're able to function better from work from home ecosystem, she said.
"We have a relationship in the US-India corridor between our two governments and between our two countries that we can have a more collaborative approach and maybe we can in that process also have that stronger example for the rest of the world as well,” Biswal further added.
The chamber has made it clear to all governments, including India, that they have got to create an open global trading system.

"Whether it's a drug, medical equipment or PPE. There are several components and ingredients that are coming from different places, there is a global supply chain and value chain. And if every country starts putting export controls and stops goods from moving out of their country or moving into their country, it is going to affect the ability to meet demand in every country," Biswal explained.
Biswal added: "We are seeing that happen if every country starts talking about trying to nationalise supply chains, products and inventory, I think it's going to become very difficult. And I think India has understood this."

'It's an opportunity for India'


Should govt declare a financial emergency?
By A K Bhattacharya
April 09, 2020 07:58 IST

'So far, no government has imposed a financial emergency in the country,' notes A K Bhattacharya.

IMAGE: A man carries his mother as they cross a deserted road in Prayagraj, April 6, 2020.Photograph: PTI Photo

On March 26, the Centre for Accountability and Systemic Change, a governance reform outfit, filed a petition with the Supreme Court, seeking that the Centre must declare a financial emergency in view of the country-wide lockdown imposed after the COVID-19 outbreak.
This was a public interest litigation that pleaded with the apex court that it must direct the Centre to use the financial emergency provisions under Article 360 of the Constitution.
Two days earlier, Finance Minister Nirmala Sitharaman had ruled out the imposition of a financial emergency, while announcing the government's decision on March 24 to extend the deadlines under various statutory rules and procedures for individuals and companies.
'No move to impose financial emergency as was claimed by some reports,' Sitharaman said while addressing the media.

There was, however, a lot of speculation that the Narendra Damodardas Modi government might consider imposing a financial emergency to deal with the challenges of providing more funds to help the economy overcome the adverse impact of COVID-19.
The imposition of a financial emergency was also being linked to the stimulus package that the Modi government was expected to announce just like so many other countries had rolled out similar measures in the last few days.
But what does a financial emergency entail?
The Constitution has provided for three kinds of emergencies.
Article 352 allows the government to impose a national emergency if it believes that there are serious threats to the security of the country or any of its territories due to war, external aggression or armed rebellion.
Under such an emergency, the Centre assumes all executive, legislative and financial powers and it can frame laws on subjects that are the domain of state governments under the State List.
All fundamental rights stay suspended except Article 20 (right to protection against conviction of offences) and Article 21 (right to life).
Such an emergency has so far been imposed on three occasions - at the time of India’s war with China in 1962 and Pakistan in 1971, and on grounds of internal disturbances in 1975.
The second kind of emergency can be imposed specifically for states under Article 256, under which President's rule can be imposed on any state if there is a failure of the Constitutional machinery.
Such emergencies have been imposed on many states over the last many years.
These are revoked once an elected government can be formed in the state.
A financial emergency under Article 360 can be imposed by the President if he or she is satisfied that the country's financial stability is threatened.
Such a decision has to be laid before both Houses of Parliament and they have to approve it by passing a resolution within two months.
Under its provisions, the Centre can impose norms of financial propriety on itself and all the state governments, requiring their budgets too to be passed by it.
So far, no government has imposed a financial emergency in the country.
The most significant power under Article 360 is that the Centre can reduce salaries and allowances of those serving the government at the Centre or in the states, including judges of high courts and the Supreme Court.
It is this provision which can provide substantial cushion for central finances if and when the need arises to provide a stimulus without completely abandoning fiscal discipline.
Salaries and allowances account for an estimated 25 per cent of the total expenditure of all the states.
For 2019-2020, this would be about Rs 9 trillion.
For the Centre, the civilian employees's salary and allowances are estimated at Rs 2.5 trillion.
Thus a financial emergency will give the Centre the flexibility of imposing a cut in the total salary budget of about Rs 11.5 trillion for all central and state government employees.
A 10 per cent cut in salaries will give the Centre a saving of about Rs 1.15 trillion.
But it will also be a hard decision, adversely affecting the popularity of the government.
No government employee will like the pay cut and each of them will remember it with a lot of pain.

But at a time when many private companies are letting their employees go, shutting down their operations which are leading to job losses and even cutting wages, the salary reduction provision of the financial emergency is certainly an option that the Centre can examine.
The country will also eagerly wait for the Supreme Court response to the public interest litigation filed by CASC on the need for imposing a financial emergency.

Should govt declare a financial emergency?


'Lockdown will lead to shutdown'
Last updated on: April 08, 2020 11:26 IST

'You cannot start an MSME again.'
'It is not like a Yes Bank that someone comes and saves the bank.'
' Once the shutter is down for an MSME, nobody will come to its rescue.'

An MSME unit. Kindly note the image has been posted only for representational purposes. Photograph: Reuters

According to a survey conducted by the All India Manufacturers Organisation, over 71% of its member establishments are unable to pay wages owing to various reasons following the 21-day national shutdown to prevent the coronavirus outbreak.

The AIMO, an apex trade body focused on the interests of the medium, small and micro enterprises (MSME) sector, surveyed 5,000 traders and MSMEs across the country over the last few days, to gauge the impact of the national lockdown.
The survey's findings showed that 63% of entrepreneurs quoted cash flow problems for their inability to pay wages at this time.
"To know the feelings of a small entrepreneur you have to be in his shoes," K E Raghunathan, past president, AIMO who conducted the survey, tells's Syed Firdaus Ashraf.

Why did you carry out this survey among your members?
We have been saying for the last 10 days that the first 10 days of a month are the most crucial for any MSME and the cash flow problems are likely to come up while paying the salaries. Because from the 1st to the 5th of every month we have (payment) commitments and so we wanted EMIs to be safeguarded for us.

Unfortunately, the advice from the RBI (on deferment of EMIs) came on March 27. but the clarity never came.
The banks individually took a decision on how they wanted to implement it on April 2. By the time people could make use of this scheme the money was removed from their accounts due to ECS.
Now the field level problem is that this 21-day lockdown has dismantled many people. We did a study across the country as to what happened to payments in the informal sector.
In the formal sector, payment is easy because you transfer it from banks and you can work from home.
In a small enterprise, say, if you have 15 people in an informal sector job out of which two people say are finance guys working from home and 12-13 people are factory workers where there is no work.
How can I then pay salary to these 12 people, that too full salary, when there is no work? And I will have to pay the other two people also who have been working from home.

Is the government telling you to pay the full salary?
There was a directive from the ministry of labour that businessmen must not deduct any salary for the days not worked.
This is a very serious matter because once the direction comes from the Government of India and if somebody violates it, then you are finished.

But that directive is only for one month, isn't it?
During the curfew period no deduction shall be made as a non-working day.
In big companies the managing directors don't even know their employees's names and how many of them work in their company, but here in MSMEs the owners know each and every worker's name and their extended families too.
MSME companies are heart-driven while in big companies it is system-driven.
MSMEs works in emotional and sentimental ways in handling people rather than commercial and financial.
In our survey we asked, have you paid salaries? If the answer is yes, then the next question was, whether you paid full salary or half salary? If not paid, then what is the reason for not paying?
The number one problem they could not pay was because of computation problems as people could not reach their offices to pay the salary. The police did not allow them to come out of homes and they were beaten up when they tried to reach office.
There is a lockdown, so how can we pay salaries? I am not able to compute the salary because curfew is in place.
The chequebook is in the factory which we cannot reach and banks too are not working in full capacity.
I am myself unable to go to the bank and withdraw cash. There is a logistics issue.
The intention to pay salaries is there, but the means are not there as there are operational problems.

The government is not saying they will take harsh action if you don't pay salaries. There is no government notification as such, either.
It goes without saying. Why do you then say, pay. Don't say such things then.
How can I pay? But please tell me, how to make me pay (as there are logistics problems)?

Are businessmen afraid that if they don't pay salaries on time then action will be taken by the government?
It is a legally tenable notice from the ministry of labour. The joint secretary has already issued directions.
No deduction of salary on account of people not able to come to office during the curfew shall be done by any establishment or enterprise.
And when we go to file provident fund and ESCI, the government will come to know the details.
And now I am worried about how to pay as I have three problems. Will the government find a solution or not?
I have a computation problem, a logistics problem and a cash problem.

How long do you expect this crisis to go on?
I don't know for how long, but whether it goes on or not my life will be miserable, that much I know.
If I don't pay people they are not going to come to work.
The kind of salary I am now able to afford to pay, only the people staying in and around my area will be able to come to work.
I am not a Tata or Birla where I can attract talent from across the world. I am not a public sector undertaking or a big corporate.
We have been warning and saying avoid the situation, but nobody cares.

Who did you say this to?
Ten days ago we submitted proposals for assistance required to the government to please avoid a cash crunch in the first week of April.
If only the banks had given us an overdraft facility, we would have been happier, but nothing came.

Before the interview began, you were talking about the impact of the lockdown on industry.
Yes, I fear that a lockdown will lead to shutdown.

Those are strong words to use.
Of course. But the media does not want to listen.
Today I am seeing that newspapers's thickness is becoming less and less.
Salaries will not come and it is a serious problem. Just like coronavirus, salary issue will also be a serious problem.
You cannot start an MSME again. It is not like a Yes Bank that someone comes and saves the bank. You cannot re-start an MSME later.
Once the shutter is down for an MSME, nobody will come to its rescue.

Businessmen and entrepreneurs are positive people by nature, they always live on hope and optimism, but here you are painting a very dark picture.
It will now be very difficult to wake up, get up and walk. We can go on limping.

In small scale industries we don't have computer-aided machines. We have lathes and small machines. Suddenly if they are unused for 25 days with no maintenance and no care, it will not work again.
And all my existing stocks will become outdated when I re-start. It will need refurbishing, polishing, painting and refurnishing.
To know the feelings of a small entrepreneur you have to be in his shoes.

'Lockdown will lead to shutdown'


'We have to treat the economy as if this is wartime'
By Arup Roychowdhury
March 29, 2020 10:57 IST

'We have to stop thinking about GDP and look at the impact on output and unemployment.'
'And that is not going to be insignificant.'

Health workers conduct a door-to-door survey for COVID-19 symptoms in Ajmer, March 28, 2020. Photograph: PTI Photo

IMAGE: Health workers conduct a door-to-door survey for COVID-19 symptoms in Ajmer, March 28, 2020. Photograph: PTI Photo

As policymakers search for answers to the coronavirus pandemic, Rathin Roy, director, National Institute of Public Finance and Policy and former adviser to Prime Minister Narendra Damodardas Modi, asserts it cannot be combated through a business-as-usual economic scenario.

Speaking to Arup Roychoudhury, he says the government and the private sector will have to take a call on whether India should re-gear itself as a war economy, wherein all resources are utilised with a single aim of defeating the enemy.

Knowing that the situation is quite dynamic, what according to you would be COVID-19's impact on GDP?

It will largely depend on whether this crisis escalates in a substantial way to community transmission in India. It will further depend on whether this transmission occurs solely in the urban areas or spreads to the rural areas as well, especially in north and east India.

The impact of the crisis, even without community transmission, is also not going to be negligible for two reasons: One, the epicentre of the crisis is now Europe, an important trade partner for India. And therefore, a lot of aggregate demand in many key industries will be impacted.

The traditional problem that you would identify in a country that is very much integrated with global supply chains is going to be muted in India precisely because we have failed to fully integrate. But this adds on to the supply chain problems from China as well.

I'm assuming that even if those supply chain problems are sorted, the trouble is that the alternative -- which is domestic production -- will make things more expensive. This is the reason why we are importing many things from China in the first place.
For a number of items, it is cheaper to import from China than to produce in India. And if things become more expensive, it won't be possible to restore aggregate demand, because prices will be higher.
So we have to brace for that, particularly for an impact on the service sector.
But I've just been looking at the service sector data, and I am very encouraged by that. The relative importance of sectors that are immediately impacted -- such as transport and hospitality -- is relatively limited if you measure it in terms of contribution to GDP.
This is because the value-added contribution of these services is relatively small. Their value of output, however, is large.
We have to stop thinking about GDP and have to look at its impact by looking at the impact of the value of output and unemployment. And that is not going to be insignificant.

Officials screen an Indian waiting to board a bus to his village at Anand Vihar in New Delhi, March 28, 2020. Photograph: Manvender Vashist/PTI Photo

IMAGE: Photograph:

How has the government's response been so far?
I think the governments, both at the Centre and in the states, have stepped up to the plate in an exemplary manner in their handling of the crisis.
The handling of the crisis: The clear identification -- that the biggest risk at this stage comes from transmission from areas outside the Indian borders -- has let the Government of India implement a series of calibrated measures which do not involve stress on what is a very limited health infrastructure.
However, I think we would have to be prepared for the stage-III of the problem or community spreading.

What sort of solutions are we looking at, in terms of the economy? Do we have the resources to deal with the pandemic if it escalates?
It is very clear that the standard tools or economic analysis, and the standard instruments of macroeconomic policy will not be effective in these circumstances.
And the analytical way to think through this -- and that decision has to be taken collectively by the government, the private sector, everybody -- is to decide that we have to shift the way we think about the economy from a business-as-usual scenario to a wartime economy.
The economics of running a wartime economy are fundamentally different from the economics of running a peacetime economy. A wartime economy involves investing in winning a war because if you do not win the war, there is no economy to invest in.
And therefore, you have to repurpose the economy to make the materials needed for the job and not the materials that we would during peacetime.
In the specific case of a pandemic, therefore, we need to ramp up the health infrastructure of the country.
We are therefore not looking at building new hospitals as we would in peacetime. We are looking at the things we can do to convert existing buildings -- like a hotel or an industrial plant -- into hospitals.
Hospitals or public health care centres then take priority over everything else.
We are looking at making sure that the things we need -- right from testing to medicines to vaccines to diagnosis to research and development, to the multilateral response and alliance building which happen during wars -- are put in place.
We need to make absolutely sure that finance is not a binding constraint on this repurposing of the economy.
It is very clear that it has to be anticipatory. We need to be a couple of months ahead of the curve.
We will have to start looking at our medical personnel at all levels like wartime soldiers, sailors and airmen. And we will have to make sure that we do not use them in numbers that could jeopardise our response to this pandemic. And that would mean, creating a far more expensive ecosystem for medical professionals to be in. And additional measures such as accepting the trade-off between deploying them 16 hours a day in high-risk situations to deploying them 10 hours a day. Fewer hours reduce the risk and one is able to give an additional 10 hours the next day.

Workers spray disinfectants on a train coach, which will be used as isolation ward for treating coronavirus patients, in New Delhi, March 28, 2020. Photograph: PTI

IMAGE: Workers spray disinfectants on a train coach, which will be used as isolation ward for treating coronavirus patients, in New Delhi, March 28, 2020. Photograph: PTI Photo

Are you assessing the impact the pandemic could have on India's industrial output, trade numbers and other indicators?
I do not think that we should judge much from quarterly data except the vector, that is, the direction.
What I can say is that the short-term pick up that I was expecting before this crisis, in the second and third quarter of this year, is jeopardised.

Should the government revise its growth estimates for 2019-2020 and 2020-2021?
It would be counterproductive to change its forecast because I don't think that anyone, including the government, will be able to make a quantifiable forecast with any degree of accuracy at this time.

There will surely be an impact on tax revenue and divestment.
Yes. When economic activity slows, then tax revenue collections will not be as forecasted earlier.
If there is a danger of wealth destruction caused by this pandemic, then the value proposition of engaging in capital acquisitions, including divestments, will be considerably weaker than before.

Add to that, there is nothing you can do with macroeconomic policy here because what is driving the decline in the value proposition is not the cost of capital. So people are not going to be making linear calculations at the margin.
A good example would be the privatisation of Air India. Even if I compensate the prospective buyer for valuations -- let's say by adding net worth into the company through public money -- we don't know for how long, the business operations of the carrier is going to be affected.

'We have to treat the economy as if this is wartime'


Coronavirus crisis: What start-ups must do
By Neha Alawadhi
April 06, 2020 09:08 IST

'If many start-ups lose in this environment, there will be less number of people willing to start new businesses.'

Photograph: Sivaram V/Reuters

In view of the economic disruption caused by the coronavirus pandemic, Kris Gopalakrishnan, below, Infosys co-founder and chairman of the Confederation of Indian Industry's Start-up Committee, tells Neha Alawadhi that CII is asking the government for tax breaks and easier regulatory compliance requirements to help start-ups survive.

How is the scenario (with coronavirus) looking like for start-ups, especially smaller ones?
Its a very difficult period for start-ups, whether they are big or small.
Some start-ups have seen a difficult period in 2008 or 2011, but for most this is the first time.
It is a once in a lifetime kind of impact.

My advice to them is to stick to your employees, work from home, and figure out how you will continue your operations.
Second is to conserve cash. Look at all your expenses and reduce those which can be reduced.
Some start-ups are also considering salary cuts, especially at the senior level. I would ask them to go back to their investors to see whether they can take their help and support to increase the runway. Investors are also using the same strategy to protect their investments.
Rather than looking at new companies to invest in, they need to double down on their existing investments, so they emerge out in a better position on the other side, or at least survive.
What is heartening is that the community has come together and is working on projects on a pro bono basis to address the crisis.

At the CII level, are there any recommendations that you have made to the government to help start-ups?
We are asking for a moratorium, tax breaks, postponement of some of the regulatory compliance requirements.
Also things like whether there can be support for salaries below a certain level, so companies don't have to let go of people. These are very similar to what the MSME sector has requested.

The urgency is that optimism around start-ups is very high. They have innovated and created scalable new businesses. We shouldn't lose that.
If many start-ups lose in this environment, there will be less number of people willing to start new businesses.

What are start-ups thinking about recovery, whenever that happens?
I think the recovery will be in two steps -- first is how you operate amid social distancing because of the pandemic. The lockdown may be lifted on April 15, but the virus will still be there.
So how to provide a safe and secure environment for people to work is essential.

The second is that when this health emergency is behind us, we can focus on a full economic recovery.

Is the investment cycle going to take some time to pick up?
It will. We have requested investors... they are watching the situation, and a lot of them are worried about the money they have invested.
The way it looks like right now, we will see some companies fail. So we have to manage all that.

Coronavirus crisis: What start-ups must do