The industry chamber said that as per its Business Confidence Survey, timely action by the government will enable quicker return to normalcy for the domestic economy. It also demanded a further 100 basis points reduction in the repo rate by the RBI.
Global economic prospects have worsened conspicuously with the outbreak of coronavirus. Many countries, including India, have had to adopt strict social distancing norms and lockdowns to prevent the pandemic from spreading resulting in a near halt of economic activity.
“The Overall Business Confidence Index stood at 42.9 in the current round vis-à-vis an index value of 59.0 reported in the last survey,” FICCI said.
The index value had slipped to a low of 37.8 in the second quarter of 2008-09 – at time of the global financial crisis.
Sharp moderation both in current conditions as well expectations about the future were responsible for pulling the overall index value down during the quarter, said the industry chamber.
It also made a case for financial package for the entire industry (especially micro, small and medium enterprises) from the government in the form of subsidies, policy support, tax holidays, and special dispensation of funds to sustain employment levels before the COVID-19 pandemic.
“Immediate measures need to be taken to instill confidence in decision makers of banks. Simultaneously, efforts must be made to make the entire lending process foolproof which will ultimately enable swifter decisions,” it said.
Labour market reforms is the need of the hour and must be taken up on priority.
FICCI further suggested that the Reserve Bank of India (RBI) should undertake direct purchase of corporate bonds and reduce the key short-term lending rate (repo) by another 100 basis points.
The Survey drew responses from about 190 companies with a turnover ranging from Rs 1 crore to Rs 98,800 crore and belonging to a wide array of sectors. The survey gauges expectations of the respondents for the April-September 2020 period.
Multilateral institutions have revised down the growth and trade forecast for the year 2020 considerably. The International Monetary Fund (IMF) in its recent release has downgraded global growth forecast and placed it in the contractionary zone for the year 2020. WTO also projected global merchandise trade flows to plummet anywhere between 13-32 per cent during 2020.
“India’s economy is also facing a triple shock through the demand, supply, and financial channels,” FICCI said.
In fact, most of the companies participating in the Survey indicated that the spread of coronavirus has had an adverse impact on their businesses.
Around 72 per cent of the respondents said their operations have been hit hard by the virus outbreak.
“Only 5 per cent of the respondents were not impacted by the pandemic. In addition, 90 per cent of the respondents of the Survey said that their supply chains have been impacted,” said the industry body.
FICCI said participating companies were less optimistic about their forecasts for operational parameters over the April-September 2020 period.
In the current survey round, a sharp increase was noticed in the proportion of respondents anticipating lower sales in the next six months, it said.
About 53 per cent respondents expected lower sales over the next two quarters. Likewise, an increase was noted in the proportion of respondents citing decline in investments going ahead.
With consumption demand plummeting amidst the nationwide lockdown, companies are seeing freeing up of their existing capacities and the present environment is not conducive for undertaking fresh investments, said the Survey.