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Opinion | India Inc needs support to sustain employment

Indian companies are huge employers but are falling short of money to keep paying salaries. To minimize job losses and prevent a crash in consumption, they need help

As each day passes with the country under a lockdown, stimulus calls arise from different sectors of our economy. Yet, the government seems in a bind over how exactly to go about it. Piecemeal measures have been announced, but far more is needed to tackle a crisis of this enormity. Unemployment has jumped several-fold to over one-fifth of our workforce, according to the Centre for Monitoring Indian Economy; growth in gross domestic product could possibly contract this fiscal year; businesses big and small may have to fold operations, while countless Indians risk getting pushed into poverty. Even the country’s largest publicly traded companies are finding it hard to cope. A report by Deloitte cautions that more than a quarter of the top 100 companies, as listed by market capitalization on the National Stock Exchange, may not be able to bear their current wage bills if output declines even by 30%. Given that economic activity has been at a standstill for more than a month and a full resumption looks far away, the drop ahead could be steeper still—unless a quick fiscal plan reverses the downward spiral of demand and supply.

Distress could deepen after wrecked profit-and-loss accounts and impaired balance sheets take effect. Remember, payrolls are a fixed cost—to be borne regardless of revenue intake. With toplines rendered uncertain by an economic blow, the bottom is expected to fall out of bottomlines. As losses worsen, survival could require employers to cut paycheques, lay people off, or both. In fact, several companies have already begun doing this on the basis of dismal financial projections for the year. Those left jobless would scale back family expenses, naturally, even as the rest conserve cash. With this happening across the economy on an unprecedented scale, there would be little respite for anyone. Consumption across the country could crash, and with it, sales of various products and services, dragging corporate performances down further. A significant chunk of spending in India, after all, is done by the salaried lot whose jobs are now at stake. Very few of them are reckoned to have sufficient safety cushions to fall back on, and assets are difficult to liquidate in a scenario of value destruction all around. All this makes it clear that India Inc. needs support.

The government cannot bail out small enterprises alone and expect an economic revival. To contain the impact of covid-19 on the economy, as Ratan N. Tata of the Tata Group advised in Mint on Monday (“Ideas For Economic Revival"), we need demand reconstruction. A stimulus package, as Sajjan Jindal of the JSW Group wrote, is the need of the hour. The shape and size of it needs to be worked out in consultation with key stakeholders. If the Centre wants jobs preserved, for example, it should offer a wage bill subsidy in lieu of commitments not to downsize staff. Layoffs, though, may yet be inevitable in many sectors. As a social security measure, the government could return a year’s income tax paid by laid off employees as a loan to be repaid slowly once they find jobs again. There are other ideas, too. The central bank could lend money directly to companies with the government taking on the credit risk entailed. The broad aim should be to generate demand in general, and for this, state spending on public projects would also need to rise sharply. The multiplier effect of such expenditure could help a wide assortment of industries. With large enough sums put into play, the benefits would reach far and wide. The sooner all this is done, the less funds it will take.

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