Indian industry seeks doubling of credit to restart engine

The Indian industry has called for a doubling of credit growth and relief in wages and taxes to help revive manufacturing as it awaits an economic stimulus to cushion the blow from the covid-19 pandemic.

“Our thinking is that the economy requires credit to grow at 14-15% as compared to about 7-8% last year,” said Vikram Kirloskar, president of Confederation of Indian Industry (CII). “To do this, banks will require extra capital support which can be leveraged 5-6 times to provide funds to industry. It is essential that firms be not allowed to go under due to this crisis situation and special measures are required for payment of wages and reconstruction of MSME (micro, small and medium enterprises) and stressed sectors.”

Two government officials said that upcoming measures could focus on MSMEs facing debt and wage burden at a time of weak demand. A CII note also cautioned that “the government should not spend all its firepower at once” as the crisis will not end soon.

“The current crisis has posed huge uncertainties, with no clear sign of an end time as of now. Given this, we would suggest that the government readies itself with packages that may be announced from time to time,” said Chandrajit Banerjee, director general, CII, adding that especially the MSME sector is likely to face a massive cash flow crunch. “There is also need to ensure that larger companies, PSUs and government departments release the funds owed to MSME without delay. A monitoring portal can ensure this.”

He also suggested a special factoring fund to enable MSMEs discount their bills to approved retailers with faster realization. “It is also important to ensure that credit ratings of firms are not impacted due to delays in repayment of bank loans, interest, instalments, etc. All due instalments should be postponed by three months without being considered as NPA (non-performing asset),” he added.

Business leaders have suggested a phased re-start of factories based on infection curves, which is in line with government’s proposal for a relaxation. It has proposed easing curbs on manufacturing, e-commerce and construction sectors, alongside logistics and transport in the first phase.

Industry officials said the initial measures by the government and the Reserve Bank of India were inadequate.

Sangita Reddy, president of Federation of Indian Chambers of Commerce and Industry (Ficci), said that a stimulus of ₹9-10 trillion, which is equal to 4-5% of gross domestic product should be injected for relief and rehabilitation across all levels of the economy.

“If we don’t help industries (large and small), we will have large-scale job losses, which will contract demand significantly, and will lead to further pressure on utilization of businesses and their liquidity, hence more job losses in future, and exacerbating the situation,” she added. Such job losses would impact economic development even in the medium term, added Reddy.

Harsh Goenka, chairman of RPG Enterprises, said the three-month moratorium on debt repayment does not provide interest relief. “What will really benefit is interest relief over three months, because otherwise, where is the money going to come from. You are today bearing the fixed cost of people etc and your revenue is zero.”

Industry executives also pressed for lower taxes.

Rajan Wadhera, president of the Society of Indian Automobile Manufacturers, said that a cut in goods and services tax (GST) rates should be accompanied by an incentive-based vehicle scrappage programme as well as low-cost finance.

GST cut as a temporary measure could be the biggest relief. There has to be a stimulus for the smaller businesses in the supply chain,” said Gurpratap Boparai, managing director at Skoda Auto Volkswagen India Pvt. Ltd. “The government should look at reducing taxes across multiple levels for a temporary period. This may involve reducing registration charges, GST as well as cess at state level.”He urged that such revenue neutral policies will help stoke demand and enable sectors such as automobiles to come back on track.

“Consumers too would need easy finance to buy what the industry would produce. The financial system needs a big injection of liquidity and it will help to have an extended deferment of debt repayment and taxes,” said Sanjay Kirloskar, president at AIMA.

Vinod Sharma, managing director of Deki Electronics, said that besides soft loans and higher working capital loans, the government should allow firms to decide on employment terms with workers to encourage greater productivity.

Nandita Mathur, Prasid Banerjee, Rhik Kundu, Amit Panday and Jayshree P. Upadhyay contributed to this story.