Explained: Why Indian Companies Are Worried About Second Wave Covid
The second wave of Covid-19 is in decline, but states have yet to ease local lockdown-like restrictions, resulting in reduced economic activity. As a result, the second wave eroded the gains made by companies in recent months.
Many companies across the country are facing a crisis again and sentiment has been disrupted across the board, according to the latest round of the FICCI’s Business Confidence Survey.
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The latest responses revealed a sharp deterioration in the level of optimism of Indian businesses compared to the previous survey. According to the latest FICCI report. The Global Business Confidence Index (OBCI) fell sharply as demand was hit hard.
Given the uncertainty, short-term business growth expectations remain subdued. The OBCI plunged to 51.5 in the current poll after hitting a decade high of 74.2 in the previous round.
Deteriorating economic conditions, along with moderate short-term expectations during the second wave of Covid-19, pushed the overall value of the index down by more than 20 points. However, the index score was higher than the 42.9 recorded a year ago.
LESS DEMAND A GREAT CONCERN
At least 70% of those polled said that lower demand is a worrying factor for the future. This indicates that many companies are concerned about declining demand as it could impact sales for a longer period of time, even after the second wave ends.
The FICCI investigation has further escalated demand concerns raised by the Reserve Bank of India (RBI) in its recent May 2021 bulletin.
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The survey was conducted during the months of April / May 2021 and captures the expectations of respondents for the period from April to September 2021.
LESS HOUSEHOLD EXPENSES
The FICCI survey also noted that household incomes were severely affected by the second wave and that it could weaken demand conditions during the second wave for a longer period.
“Since a much larger proportion of the population has been affected by the current wave, there has been a permanent decline in income for many households that have suffered job losses or lost their livelihoods because of of Covid-19 ”, notes the investigation.
“There is a call to put in place measures to support the recovery in demand, most believe that these measures will be crucial for the economy to recover from the latest shock induced by the pandemic,” he added. .
That said, companies believe that one of those measures is to speed up the pace of vaccinations. This will allow states to ease restrictions more quickly and pave the way for increased economic activity.
While the situation is better than in 2020 in terms of operations, this year’s localized lockdowns have led to an increase in raw material costs. About 65 percent of respondents cited rising raw material costs as a constraining factor in the current survey, compared with 59 percent stating the same in the previous round.
LOWER SALES OUTLOOK
Companies that participated in the latest FICCI survey remain uncertain about sales prospects. Only 31 percent of respondents expect better sales in the short term, far less than 66 percent who were optimistic in the previous cycle.
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It should be noted that companies have experienced a decline in sales and profits could suffer in the short term. “The proportion of respondents citing higher profits over the next six months has fallen to 16% in the latest survey from 36% of respondents saying the same in the previous cycle,” the survey noted.
RESTRICTIONS HARM BUSINESSES, NEW HIRING
The impact of localized restrictions affected around 80% of the companies that participated in the survey. All agreed that they were facing problems in doing business due to localized lockdowns.
Due to declining sales and demand, only 19 percent of companies that responded to the survey were optimistic about hiring in the next two quarters. It was 35%. 100 in the previous round.
LOW FEELING OF CONSUMERS
Respondents pointed to low consumer confidence as their main concern, followed by unavailability of raw materials and shortage of labor, due to various factors such as increasing infections in the industry. family and reluctance to travel.
Increased exposure to risks and logistical delays resulting from further lockdowns was also highlighted as constraining factors.
A majority of respondents stressed that they strictly follow government-imposed rules and encourage Covid to behave appropriately on their premises. Moreover, an increased level of digitization has helped companies to overcome this wave in a more planned way.
Respondents also emphasized that they ensure sufficient liquidity and maintain cushions of key inputs as well as stocks of finished products. At the same time, companies are increasingly focusing on foreign markets where demand is revitalizing. In the domestic market, the emphasis is much more on restoring areas with less severe restrictions.
CREDIT PACKAGE, MORATORIUM AND RELIEF
While the political support given by the RBI on May 5, 2021 was widely recognized and appreciated by the industry, other questions about the functioning of the financial system were taken into account by the participants.
A large part of the participating companies emphasized the credit problems and called on the banking community to further improve lending at a reasonable rate. The companies believe that the need of the hour is to ensure sufficient liquidation of the system. Companies are asking RBI to continue to ensure sufficient liquidity in the system.
Businesses say the central bank “needs to take further action to encourage banks to lend more.”
“It is essential that credit be given to distressed segments of the industry, as well as to segments that have adequate collateral or have great potential to generate more cash flow as the economy moves towards recovery. standardization, ”the survey noted.
The companies also pointed out that the loan approval process has become extremely long, which significantly reduces the business prospects.
The participating companies felt that any refusal by banks to lend to companies must be justified by a reason and that the same must be formally communicated as this would increase transparency.
A majority of participating companies also called for an extension of the moratorium on loans, repayment of principal and interest, for at least six more months.
Participating companies stressed the need for a stable interest rate regime for around 12 to 18 months. They also recommended that the RBI continue to be accommodating until a lasting normalcy returns to the system.
On the tax front, companies unanimously felt the need for another tax package, mainly focused on demand. Demand stimulus measures such as direct income support to the rural and urban poor, income tax cuts for the middle class, and temporary indirect tax cuts need to be urgently considered.
Respondents also stressed the need to continue with liquidity support and credit enhancement measures for MSMEs, as announced the previous year.
They called for targeted tax support – in the form of tax exemption and financial assistance – to sectors that were previously excluded from the stimulus package but which have been deeply affected (including travel, tourism, ‘hotel and hospitality industry and civil aviation).
Another demand highlighted by companies was for the government to provide employment-based incentives to employers in order to avoid any job loss. This could include temporary tax support for the payment of the salary of employees in the MSME sector and / or an exemption from the employers’ contribution to the PF and the ESI for the current year.
Many companies have also felt that frontloading capital spending, both by central and state governments, is the need of the hour, as it will greatly strengthen and support market sentiment and demand.