The chief of India's oldest trade group has warned that stagnant consumption is one of the biggest challenges that India faces amid the lockdown necessitated by the coronavirus pandemic. Millions of small businesses - shops, restaurants, merchants - form the backbone of India's economy and now they have nowhere to go as there are no customers and they have suppliers who need to be paid, Vikram S Kirloskar, president of Confederation of Indian Industry (CII), told NDTV in an interview. The non-profit business association CII was founded in 1895.
"...They have employees, migrant labour to take care of. I think that's the real concern. Larger companies like mine, we have a way to look after our suppliers, our dealers and our employees. Whether it's help, distribution of food... There are things larger companies are doing in their area and around the country... But I think small businesses and small companies are going to have a tough time," said Mr Kirloskar, who is also chairman and managing director, Kirloskar Systems Ltd and vice chairman, Toyota Kirloskar Motor.
To ease the pressure on consumers, whose disposable income has reduced due to job and pay cuts and businesses coming to a standstill amid the lockdown, the Reserve Bank of India had announced a three-month EMI moratorium on loans. But Indian banks are already grappling with Rs 9.35 lakh crore of bad loans, which was equivalent to about 9.1 per cent of their total assets at the end of September 2019.
The centre and some states have also announced cash transfer schemes to the bank accounts of the poor. But all these measures are still facing multiple challenges of an overall slowdown in the economy.
"The only way to get business running is through cash flow, which means customer come and buy. So just giving them a loan or repayment facility on their existing borrowings is terrific, but the demand is what is required, spending is what is required. We have to encourage spending after the lockdown is open so that a lot of these small and big businesses start recovering and cash flow starts moving," Mr Kirloskar told NDTV.
Some of the sectors that need a financial package from the government are tourism, airline and hospitality, according to Mr Kirloskar. "They have a lot of assets which are not being used for some time now, which are costing money as time goes by," he said. "I don't think travel is going to be encouraged even after the lockdown is over, it's going to take a few months," he added.
McKinsey & Co last month forecast India's economy could contract by around 20 per cent in the three months through June, if the lockdown was extended to mid-May, and growth in the fiscal year was likely to fall 2-3 per cent.
"We cannot be pessimistic, we have to be optimistic in the sense the India story is still good, we still have a large domestic market which a lot of countries don't have. We do have skill and the economic condition of our country is not that bad compared to a lot of countries," Mr Kirloskar said.