Coping with
post Covid-19 Disruption
Post
pandemic prediction can’t be a soothsayer’s job. Preparing the economy from a
tremendous shock and staying inside home for nearly a month in some States and
could be longer as we see the accelerated rate of spread of Covid-19 hit
persons, is the biggest challenge. India is not a city state like Singapore or
Finance hub like Hong Kong. The optimists expect the lockdown to be lifted by
the 14th April while the less optimistic put it to the end of April.
We need to think of the strategies and actions phased over short, medium and
long term with matching resources right now. This should be both sectoral and
geographical specifics.
While we
are the leading global pharmaceutical suppliers, the low and inefficient health
sector management with historically low outlays suddenly got the awakening call
with the CVD spread and the need for public health systems to step up their
capabilities. Yet, the call of the nation has been very ably responded to the
greatest consternation of the rest of the world.
The country,
with diversity nowhere else existing, is the biggest challenge and opportunity
to the governments. Diversity has capacity to cross hold risks across segments
and has innate resilience when calamity befalls. It also provides scope for
innovation as people think more actively under pressure than leisure. When none
can be in laid back comfort that existed before, people keep working out
differently different things. For example, there have been more webinars during
the last one month than during the last six months. There have also been more
video conferences and skype calls as people started working from home. This may
gradually turn out as new order of functioning.
One of my
nieces from Bengaluru tells me that as Director of a Union Government
organization working from home became a true challenge as deliverables rest
with her than with other members of her team. Even the forgotten kitchen started
demanding her time with children demanding newer tastes and new dishes. This is
making her work for 14 hours instead of 7 hours in office. There is a whole
paradigm shift in the work environment., not for one but many like her – with
no gender discrimination.
What would
be the future like? Very many organizations could find new economies of scale
in a combination of work from home and work at office. More factories will have
to think of reworking their supply chains that thoroughly disrupted due to the
CVD, New leadership paradigms emerge. The 10 percent manufacturing small
enterprises manufacturing gloves, sanitizers, masks, medical emergency kits to
combat CVD will find near extinction of such market. They should expect this to
happen and therefore prepare from now on the way to re-engineer their process
to newer products and new markets. They will notice that institutions and
persons that were after them during their need will turn their faces and likely
to hold up their bills in their search for finding cash margins for fresh
initiatives.
Our country
will have to reinvent itself in workspaces and relationships like never before.
In this process, at the micro level, enterprises will re-engineer their
production and processes and search for new markets. Many will find the exit to
be a problem.
Amidst a
supply driven crisis, the unrest and plummeted resources of all kinds, as also
eroded markets, MSMEs will require sustainable process consultants to rescue
them at affordable costs. Here, the governments in looking at the sovereign
dues and the banks looking at the stuck balance sheets of MSMEs should learn
the art of turn around management or seek recourse to experts in turn around
management.
Every
nation will be on the uncertainty horizon. Risk mapping will be difficult.
Everyone has been a looser. Non-performing loans will surge unless the
thresholds change. Indian regulators need not wait for the world to guide them.
They can guide the world. BCBS has already provided for applying the thresholds
for SME sector as per the needs of the country. The time for action is now. The
threshold should move to a 180day horizon till December 2020 subject to a
review after six months. This will automatically provide for higher leverage in
lending for the MSME sector, the nerve wire of production that has been contributing
35% of GDP, 45% of exports and employing 112mn persons.
The poor
and daily wage earners, the hawkers, the wayside eateries, many disabled,
contract workers – both skilled and unskilled, need government subsidies, even
salary buffers, supplies and cash to meet their daily needs for at least three
more months until the industries and enterprises re-look for employing them.
Fiscal
responsibility under these circumstances of both the State and Union
governments already hit by the lowest ever tax returns requires out-of-the-box
thinking to meet the situation. Several relief funds of the CMs and PM, private
donors and even CSR funding even amidst the near 10 percent hit on most
corporate balance sheets would be inadequate for revival of the economy. It may
take at least nine months to one year to cone to a new normal which would be
far less than that we had in the slowing economy.
Even if
people have cash in their hands, which itself is doubtful, they will not get
the goods and services as the lockdown succeeding the slowdown of the economy,
there will be supply driven inflation. Scarcity stares in all areas.
Courage is
the watch word. In times of distress people display amazing unity while
immediately after normalcy is restored the same set of people will most likely
diverge. While the demand to lift the lockdown in toto will surface with more
vigor than now, it would be prudent to release in parcels to rework on the
efficiency of the health sector infrastructure, doctors, nurses, para medical
staff on one side and on to ensure that the wheels of production get back to
normalcy gradually, on the other. Second, the discipline enforced should be
redirected to finance, transport and manufacturing sectors.
The focus
of trade will suddenly think of new protectionism, new direction of
investments, newer regional allies in trade and new relationships. The denuded
investor firms and the huge number of corporates off-loading the bonds in the
markets for liquidity are bound to put pressure on the financial sector. This
recession is very unlike the 2008 or even 1930 and it will be a prolonged and
widely spread across 200 nations in the globe.
Banks are
systems driven and not enterprise driven, Unless the instructions are fed to
the system, the concessions do not take effect. In several Banks, even the
usual half-yearly reviews of several accounts on a regular basis did not take
place. The disaster today is extraordinary and requires extraordinary speed of
action post new normal.
At a time
when the demand for credit is at the lowest level due to several manufacturing
and trading enterprises shut their shops due to lockdown and are seeing future
as more uncertain than now, liquidity doors have been kept open by the RBI as
though that was the problem area that required urgent attention. Even during
the last six months RBI has been extremely accommodative to Banks both in
capital buffer and liquidity commitments. But the credit did not move to a
higher zone in non-food segments.
“These capital and liquidity buffers are designed to support
the economy in adverse situations,” as the Fed said in a statement. Fed’s other
hope is exactly what the India incorporated is looking for: less rigidity from
the banks in extending the required debt, post pandemic. COVID-19 has caused
serious disruption to global supply chains and has a huge impact on financial
markets and trade ecosystem. It is important to retain the customers and
governments post pandemic and rebuild their lost supply chains to operate
sustainably.
India’s biggest advantage is its demographics and therefore,
the future needs to be addressed with alacrity so that entrepreneurship will
not be governed by the hoary past but a bright future.
The Author is an economist and risk management specialist.
The views are personal.
Published in Money Life 2nd April 2020; www.moneylife.in
