Resurgent India Knowledge Series Presents
Webinar On Shape of Economic Recovery
Speakers- Mr. Ashok Kumar Pradhan, an officer on special duty-PNB, Ex. MD & CEO-United Bank
Speakers- Mr. Mrutyunjay Mahapatra, an officer on special duty-Canara Bank, Ex. MD & CEO- Syndicate Bank
Moderated By- Mr. Jyoti Prakash Gadia, MD-Resurgent India Limited
Key Takeaways
● The government has formed two buckets of priority. One is priority geographies and the other is the priority sector. Priority geographies are all the non-hotspots, non-threatening zones of the country not tremendously affected. Priority sectors include agriculture, manufacturing, e-commerce, road irrigation projects, logistics, SEZ, IT Hardware, Oil exploration.
● The Indian economy was already experiencing slowdown before the occurrence of COVID-19, unlike the US & UK economy. Globally it has been predicted by renowned forums that economies of the world will face an inevitable recession and negative growth of 2-2.5%. However, India will not pose to go in the negative territory but is expected to grow at around 1-2%.
● As of today, 15% of GDP comes from agriculture and allied activities. So, from a political standpoint and step towards recovery, the government will have to prioritize agriculture and allied activities. 30% of GDP is coming from industry and 55% is contributed by the service sector.
● In a database generated by RBI, sectoral deployment of credit, there are sectors that between March 19 to Feb 20 clearly display deceleration and contraction.
● Another study found expresses, 38% deployment of credit in sectors that either is high risk in terms of laying off people or contracting. MSME, tourism, physical contact, hospitality, aviation employ around 1.3 billion people globally are high risk at laying of people which contributes to 38% of the global workforce.
● India being a service-oriented industry, 45% of total economic activities will see some sort of contractions or lay off.
● SBI data reports that about 37.3 million of the workforce will go jobless which is costing the economy only for the lockdown period around Rs 4 lakh crores. Many world economists are using the term “disastrous recession”.
● One of the challenges that the banking industry will be struggling with is not many avenues to come out of the situation for another 2-4 quarters. There is no demand for consumption.
● Due to rise in nationalism in the last 3-4 years, manufacturing activities and supply chain lengths and spreads are getting contracted. There are private equities that have excessive funds that have been not been invested by the GPs waiting for the right opportunity. Corporates will now have attractive valuations and added to that the liquidity infusion due to ‘TLTRO’ scheme, huge corporates will be engaging into vertical M&A.
● Government will have step up and increase its short- and medium-term spending via infrastructure, employment generation to keep the consumer confidence floating. Private investments have proven to fuel economic growth and hence been a focal point of the previous budget.
● Boosting primary and secondary sector with investments will be priority of the government which were lacking traction and will propel during the recovery phase.
● Healthcare sector that includes paramedics, research, biotechnology will also demonstrate huge boost.
● Distribution of wealth will be priority in an economy like ours. Balancing act will have to be played out and it will be interesting to watch how policy makers outlines them. Distribution of wealth should be supported by creation of asset which will give return in due course of time.
● India has history of being responsive during emergencies. We will have to look inward and strengthen our manufacturing set ups. Invest substantially to scale up the units.
● There is inefficiency in deploying the workforce in agriculture segment. We should bring some of it out and utilize that no of people in manufacturing.
● Create avenues of employment via satellite cities to avoid migration of rural to cities like Mumbai and Delhi for employment. Transfer of wealth should be direct benefit transfer rather than otherwise.
● Like the state of Telagana, which is utilizing this time and has opened road construction thereby generating employment and also creating asset by relaying roads and resuming partial construction activities which wasn’t possible due to political agendas. Complete lockdown is going to break the economy which a country like India cannot afford.
● Because of moderate oil prices the current account deficit will remain positive, RBI Forex reserves is strong, so we can expect another round of relief is likely to come to MSME Sector.
● MSMEs will also have to be supported by insurance companies and other 30 y/o and 40 y/o funds, they will also come in play and substitute some of the banking activities.
● MSMEs needs to backed up today, banks should liberally fund them without looking at additional collateral. Rate of interest should be reasonable and GoI should create an opinion and come forward and provide guarantee of all the exposure and bring back MSMEs from their morass.
● Certification of financial statement and other disclosure should be improvised as to reduce trust deficit between borrowers and lenders.
● Shape of recovery will be inverted ‘W’, rapid growth followed by slow down, pattern for another 16-18 months. This will again depend upon the size and type of industry. MSMEs will undergo ‘U’ shape recovery rather than ‘V’ shape recovery. Also, reformations in judicial system, commercial aspect-large projects (power, telecom etc) that are in trouble should be brought in order to get to road of recovery.
● Reports suggests that this quarter is likely to be a washout, and the next quarter will be recalibrating and refurbishing the stalled activities. So potential recovery will happen from Q3 or Q4.
►Watch the webinar here : https://www.youtube.com/watch?v=8lXLjFrGNCs
