March 24, 2020 / 7:23 AM / 4 days ago

India needs stimulus plan or it risks crippling small businesses - industry bodies

MUMBAI (Reuters) - India’s small and mid-sized enterprises (SMEs) will struggle for survival if the government does not follow international counterparts in offering financial support to those acutely impacted by the coronavirus outbreak, industry bodies said.

FILE PHOTO: A labourer works at a building material factory in an industrial area in Dasna, in Uttar Pradesh, India, January 9, 2019. REUTERS/Adnan Abidi/File photo

The government has acted to slow the spread of the virus which has infected 482 Indians and led to nine deaths, such as by advising people to stay home. Yet India is one of few nations to announce neither budgetary support nor interest rate cuts.

Labour-intensive SMES, which employ over a 100 million of India’s urban population, “need immediate fiscal relief and credit flow to keep their work force and essential plant and machinery running,” said Ravi Sehgal, head of the Engineering Export Promotion Council of India - a trade body with 13,000 member firms of which 60% are SMEs, making it one of India’s biggest SME voices.

The Ministry of Finance did not respond to a Reuters request for comment.

Many economists have sharply lowered their India growth forecasts for the fiscal year through March and the next beginning April due to the outbreak, with some flagging further cuts should the situation deteriorate.

The central bank has been intervening to ensure both rupee and U.S. dollar liquidity and to manage bond yields, but some market participants have argued this - plus a widely expected interest rate cut early next month - may not be enough.

Former Reserve Bank of India Governor Bimal Jalan told Reuters the bank should cut rates, and that the government should act without worrying about fiscal deficit targets.

Regulators also need to address short-term liabilities and the refinancing capabilities of companies, said portfolio manager Venkat Pasupuleti at Dalton Investments.

“This is not a crisis where you take interest rates to zero and everything will be fine,” Pasupuleti said.

The economy grew at its slowest pace in over six years in October-December at 4.7%, with the full-year projection at 5% - the slowest since the 2008 global financial crisis.

The government expects a slump in economic activity in April-June with growth at 3.1% to 3.4%, two government officials said. There are downside risks to projections for the current quarter too, they said.

“India being the fifth-largest economy in the world cannot be found lagging far behind in taking due rectifying action,” said Niranjan Hiranandani, head of ASSOCHAM, an umbrella organisation representing over 250 chambers of commerce and trade associations and indirectly 450,000 member companies.

India needs monetary and fiscal stimulus “to protect businesses from going bankrupt,” he said.

Reporting by Swati Bhat and Aftab Ahmed; Editing by Euan Rocha and Christopher Cushing

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