Many firms see hopes of a revival dwindle3 min read . Updated: 19 May 2020, 01:24 AM IST
- Survival of firms with weak balance sheets is at risk as govt’s structural reforms have largely overlooked industry-specific demands for a rescue package
- The drop in crude prices and the covid-induced lockdown has delivered a double whammy to energy firms
NEW DELHI : Dozens of companies in sectors that have been the worst hit by the extended national lockdown are on the brink of bankruptcy with the government ignoring their pleas to help cushion the blow from the coronavirus pandemic.
Many of these companies, especially those with weak balance sheets in sectors such as aviation and hospitality, are seeing hopes of a revival dwindle amid a lockdown, now in its fourth phase, that has caused revenue streams to dry up overnight.
The government’s measures, which stressed on structural reforms, have mainly addressed supply-side issues through a liquidity boost and have largely overlooked industry-specific demands for a rescue package. This has put the survival of these firms, which are bleeding cash with little or no revenue, and the jobs of thousands of people employed by them at risk.
“While the government has taken many steps for small businesses, there have been no direct cash infusion measures. A lack of this could potentially push these companies into bankruptcy as soon as the one-year suspension of the bankruptcy code gets over," said Kumar Saurabh Singh, partner at law firm Khaitan and Co.
Airlines, which have been grounded since the end of March, had sought direct cash transfers to help pay salaries, and a waiver of airport charges, interest and excise duty. But they have not been given any concessions, apart from a promise to shorten flying routes by easing restrictions on utilization of airspace for civilian aircraft.
The hospitality industry, which has also seen revenue slide to near zero because of successive lockdowns, has also drawn a blank. It has been seeking government support for payment of salaries for its workforce and a year-long moratorium on loans. The automobile industry wants the government to help shore up demand through steps such as an incentive-based vehicle scrappage scheme and reduction in tax rates. But their demands, too, have not been accepted.
“The auto industry was keenly looking forward to some direct fiscal measures, which could have boosted demand for the auto sector and stopped job losses," said Rajan Wadhera, president of the Society of Indian Automobile Manufacturers (Siam). “The industry will continue to engage with government and seek direct interventions for revival."
The drop in crude oil prices and the coronavirus-induced lockdown has delivered a double whammy to India’s energy companies, especially those in the private sector.
Exploration and production firms, which had sought relief from the government on various levies, especially cess, royalty and profit petroleum, are yet to see their demands addressed. “Firms are getting hammered heavily and private companies are at a greater disadvantage. Operations cannot survive this even in the near term, whereas it would take at least a couple of quarters for things to normalize. Until then, the government should consider a waiver on royalty and cess for Brent crude below $50 per barrel," Ajay Dixit, chief executive of Cairn India had said in an interview.
The upstream sector had sought government support as it is key to energy security. In the absence of any relief, firms see their business continuity plans at risk. Most energy explorers have suspended operations.
To be sure, some experts say the use of liquidity as a tool, rather than extending direct relief to businesses, is the right approach. There was no other way it could have been done, according to former chief statistician of India Pronab Sen.
“The sort of intervention that is needed is so large and wide that the government simply does not have the reach to be able to deliver. Nor does the government have the information or the relationships that are needed to make it effective. Financial institutions have both of these. Using them as the front end (to deliver stimulus) makes a lot of sense," said Sen.
Sen said the measures announced so far seek to tackle humanitarian problems on the one hand and stalled production—the main challenge to the economy now—on the other. “The sensible thing to do is to keep production units alive. What has been done is essentially towards that objective," said Sen.
Kalpana Pathak contributed to this story.