Covid reinforces inequality, even in corp balance sheets

An uncomfortable wisdom that has emerged across countries amid the covid-19 pandemic is that size matters. Households having a large savings net have weathered the pandemic better than those that have thin incomes. When it comes to Indian companies, the size of the balance sheet has been a differentiating factor.

A Crisil analysis of revenues shows that the smaller the company, the deeper has been the pain from the pandemic. To be sure, all companies suffered irrespective of their size in the June quarter which was under lockdown for the most part. But the bounce back after the economy was unlocked has been seen mostly in large companies. Less than 20% of the smaller 400 companies logged revenue growth in the September quarter.

“Large players saw muted revenue growth. However, small players, which are typically low on bargaining power and cash-crunched remained in the red,” the rating agency said in a report on Monday.

The trend has played out in most sectors. To be sure, in sectors relying on social interaction the most such as travel and hospitality, all players have been hit hard. But elsewhere, large corporates have survived well, even showing smart recovery.

Small businesses haven’t seen the end of the tunnel yet. For instance, in the consumption segment, large fast moving consumer goods firms clocked 7% year-on-year revenue growth while small and medium firms saw a contraction of 8% in the September quarter. In commodities too, the story is similar.

This has multiple implications for the economy, from price pressures to risk taking by banks. One such implication was flagged by JR Varma, professor and member of the Reserve Bank of India’s monetary policy committee.

Varma said large firms get the most benefits by borrowing below the policy rate. Further, he added that in sectors with an oligopolistic structure, such large firms can have enough pricing power. In short, a few large players becoming stronger amid a general broad-based weakness among smaller competing firms could lend a hand to inflationary pressures.

There is a need for policy support to reduce the chasm between large and small players which would help not just price stability but also revival,