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Despite being among the most substantial financial packages in the world, the Indian government’s Rs 20 lakh crore relief package was unable to directly alleviate stress of certain distressed sectors, resulting in a sense of heightened crisis By Noor Fathima Warsia
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Even before the full extent of the Covid-19 recession could manifest itself, industry bodies had indicated that the Indian industry requires a stimulus package of Rs 9-10 lakh crore to recover from the impact of the pandemic. This would amount to 4-5 per cent of the country’s GDP. In a move that went beyond expectations, the government announced double that figure, a Rs 20 lakh crore stimulus package. The package works out to about 10 per cent of the GDP, making it among the most substantial in the world. It is third only to the United States, that rolled out a package amounting to 13 per cent of its GDP, and Japan, which is over 21 per cent of its GDP.
Prime Minister Narendra Modi’s announcement raised hope in many. Termed as Atmanirbhar Bharat Abhiyaan, this relief package would focus on “land, labour, liquidity and laws”, and would deal with sectors such as cottage industries, micro, small and medium enterprises (MSME), working class, middle class and industry.
As Finance Minister Nirmala Sitharaman detailed out the package however, several industries were missed out from direct benefits. Some of these were already facing concerns and with no direct benefit, are now left in the lurch.
In the stimulus package, there is relief for agriculture through concessional credit line of Rs 2 lakh crore. FM said that MSMEs will get collateral-free loans totalling Rs 3 lakh crore.
The package’s skew towards domestic manufacturing, attracting investments and generating demand in rural markets is apparent. In turn, this will have a cascading effect on several sectors. But this much is not enough for some sectors. There is no relief given to distressed sectors such as automobiles, hospitality and tourism, media and entertainment and even retail. Each of these have faced a severe brunt in the lockdown and in conditions of social distancing. The purchase behaviour is already unfavourable in some of these sectors. The indirect benefits at best serve as band-aid solutions.
The auto industry in India had witnessed a steep decline in domestic sales, even before the pandemic. The year 2020 was already seeing auto manufacturers worry about inventories in warehouses and battling a slowdown. Following Covid-19 recession, the sector’s recovery steps will force several manufacturers to not only revisit company DNAs but also reorganise themselves for long-term survival. The degrowth and the pressure of disrupted supply chain, which was followed by several auto companies shuttering their manufacturing units due to workplace safety, continue to plague the sector. As per SIAM estimates, the auto industry was losing ₹2,300 crore in production turnover for every day of closure. Even if the relief to agriculture and MSMEs takes away some pressure, the solution is barely enough.
Halted hospitality & tourism
The hospitality and tourism industry are among the worst-hit sectors, given the sheer nature of the coronavirus. Like the aviation sector, the whole industry that has come to a standstill will reel under pressure even after the lockdown is lifted. For the sector that employs nearly 55 million people and contributes around 10 per cent to the GDP, it was no surprise that the lockdown resulted in nearly a Rs 10 lakh crore loss. The expectation that demand in the sector would not pick up much in the rest of the year or even benefit indirectly from the stimulus package has added to its woes. A major shakedown for several players is on the horizon.
Media & entertainment
The Indian media & entertainment (M&E) industry suffers the most on account of the workforce, halted content creation for across screens and shuttered theatres. Even as the PM reiterated that the package will focus on the labour class and migrant workers, the M&E sector has not been able to benefit, even leading to substantial loss of confidence. These aspects will add to the pressures of the producers and people investing in this sector. Caution is the new normal in the sector, and there is much reliance now on state governments to mitigate some of the operational constraints on this sector to give it some semblance of continuity.
Regression in retail
In the first two phases of the lockdown, with only essentials allowed through online delivery, e-commerce was a saviour for the retail sector. However, more than 95 per cent of non-food retailers have their shops closed and expect to earn 40 per cent revenue as compared to last year. Food retailers too expect a meager 56 per cent compared to last year’s revenues. Consequently, the sector, which contributes 10 per cent of the country’s GDP and employs 40-50 million people, needs immediate attention.
Each of these sectors are faced with compounded crisis after being ignored and many businesses in these sectors are facing existential threats. The road ahead will need stronger support from the government and more robust solutions.