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Punjab, Haryana, Himachal Pradesh and Chandigarh

COVID-19: Implications on Regional Industry and Economy

April-2020

Federation of Indian Chambers of Commerce & Industry

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COVID-19: Implications on Regional Industry and Economy

Even before the onset of this pandemic, this region’s economy was confronting turbulence on account of disruptions in trade flows and attenuated growth. Things are moving fast with the COVID-19 virus. One thing is sure that COVID-19 is the quintessential ‘black swan’. Two key features of black swans are that their occurrence is highly unlikely and their impact is very big, which was also the case the global financial crisis of 2008/2009. In our baseline scenario, we expect a substantial slowdown of industrial growth due to COVID-19 for the states of Punjab, Haryana, Himachal Pradesh and Chandigarh.

The situation has now been aggravated by the demand, supply and liquidity shocks that COVID- 19 has inflicted. International, national and regional firms have found out the hard way just how vulnerable their globally integrated supply chains are.

It is our expectation at this time that the course of economic recovery in India will be smoother and faster than that of many other advanced countries. Even as the Indian economy has been hit by coronavirus pandemic, the damage is expected to be limited if the situation eases by mid- May. However, the disruption is likely to last till September if the situation doesn't improve and lockdown extends. The consumption would be negatively impacted on account of possible job losses and reduced incomes.

A long-term plan needs to be put in place to ensure that small businesses are encouraged to get back on their feet as soon as it is safe for them to do so. Among other steps, the State Governments should consider easy lines of credit for MSMEs, as this is probably going to be most difficult to access. Increased protectionism may also be called for, to keep cheap imports at bay until manufacturers find their feet.

We have put together this report as a first attempt to address these issues. We anticipate diverse systems in which the industry landscape is likely to evolve in the days to come.

Rajinder Gupta Chairman FICCI Regional Advisory Council

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COVID-19: Implications on Regional Industry and Economy

TABLE OF CONTENTS

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COVID-19: Implications on Regional Industry and Economy

TABLE OF CO NTE NTS

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COVID-19: Implications on Regional Industry and Economy

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COVID-19: Implications on Regional Industry and Economy

Executive Summary

Coronavirus is a new strain that has not been previously identified in humans. It causes illnesses ranging from the common cold to diseases such as the Middle East Respiratory Syndrome (MERS-CoV) and Severe Acute Respiratory Syndrome (SARS-CoV). Globally, around 116 countries are facing the wrath of the virus with more than 10 reported cases in each country. India is one of the 116 countries and there is a sudden rise in the number of positive cases. The current situation has forced the Central and State Governments to take several precautionary measures.

The safety measures and the social restrictions mandated by the government have brought consumerism to an all-time low with people staying at home.

Restaurants, malls, movie theatres, and even schools & colleges remain closed across the country.

India is the world’s fourth-largest economy by nominal GDP and the third-largest by purchasing power parity. It is the world’s sixth-largest consumer market where more than 60% of its GDP is driven by domestic private consumption. The service sector makes up more than 55% of its GDP and employs around 27% of the Indian workforce. The other 17% of GDP is contributed by manufacturing sector that absorbs 12% of workforce. The service sector consists of the production of services instead of end-products such as aviation, retail, tourism, entertainment amongst others and has been badly hit by the recent outbreak of the Novel Coronavirus (COVID-19) in India.

The BSE index has fallen to over 30%

since February 2020 after the COVID-19 cases started coming to light, clouding the outlook in the last quarter of FY 19 – 20 for Indian businesses, especially in the service sector, and posing a risk to the great Indian growth story.

The Coronavirus Disease strain that has started spreading since December 2019 (COVID-19) in mainland China, since its discovery, has been a deterrent for the Indian Economy. India is a net importer of Chinese products with the lion’s share being electronic components at 67% and consumer durables at 45%. India is also heavily dependent on Chinese imports to make medicines — the APIs (active pharma ingredients) and other components that go into manufacturing. As the pandemic continues through the first quarter of 2020-21, imports have been hit on account of closure of Chinese factories.

This may lead to supply shortage of major components, further hindering the manufacturing activity in India and could as well be the first indication of the disruption caused by the virus in the country.

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COVID-19: Implications on Regional Industry and Economy

The travel & tourism sector is facing one of the worst crises ever due to COVID-19, impacting all segments – inbound, outbound domestic and international travel. The contagious nature of the virus has forced the government to put severe travel restrictions in cities, including visa cancellations and border shutdowns which may force the industry into exponential slowdown. It may further worsen in coming months. Airlines and Railways are already ailing due to high levels of ticket cancellations and hotels in high-density tourist destinations are laden with empty rooms, burning a deep hole in the pocket of the hospitality sector players. Travel and tourism alone accounted for 9.2% of the country’s GDP in 2018 generating around 26.7 million jobs. Under the current situation, this is going to take a big hit and cause an impact worth thousands of crores of rupees.

Retail outlets are on the front line of COVID-19 impact.Due to the Government orders of closure of malls, restaurants, multiplexes and pubs, consumers are staying at home, stores are closed and the supply chain is stalled. Online markets seem to show an uptake because

consumers are homebound and deliveries are still manageable with social distancing and safety measures. But for many retailers, this outbreak could be a delicate turning point as the disruption caused by the virus can deplete funds that were set aside for investing in building new capabilities. In the coming weeks, economic data will reflect the virus’ effect, but of course, the length and depth of the aftermath of the virus will determine how much it throws the Indian retailing scene off course.

The economic disruption caused by the virus is real - however, the specific effects on the different industries will be more visible in the coming few months. The biggest challenge is that there is still uncertainty on how long the curbs and regulations would last. With the Government stepping in and taking the situation under control, one can be sure that people and businesses can get back to normalcy in a couple of months. Till such time, the dictum for the day would be to follow advisories and stay safe.

In this report, we have identified the impact on regional industry and recommendations to combat the threat.

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COVID-19: Implications on Regional Industry and Economy

Impact on Indian Economy

It does not require an economist to tell that a complete social and economic lockdown of India for 21 days would severely impact the supply side of the economy, that is, production and distribution of goods and services, except for the essential items that are exempted.

In an economy already reeling under a demand depression, rising unemployment, and lowering of industrial output and profits, all of which are happening together for several quarters now, a supply-side constraint would deliver a big blow, jeopardizing growth prospects and social and economic wellbeing of a large number of people.

Rating agencies, both global and domestic, are unanimous that the COVID-19 pandemic will be an economic tsunami for India. Even though the country may not slip into a recession, unlike the Eurozone, the US, or Asia-Pacific that have stronger trade ties to China, analysts believe the impact on India’s GDP growth will be significant.

In India, GDP growth is already at a decadal low and any further dent in economic output will bring more pain to workers who have seen their wages erode in recent times. In its Global Macro Outlook 2020-21, Moody’s cited severe liquidity constraints in India’s banking and non-banking sectors as a hindrance to growth.

On March 26, the Indian finance minister announced a USD 23 billion package aimed at cushioning the disruption. India’s central bank joined the fight a day later with sharp interest rate cuts and a slew of unconventional measures aimed at making credit available to beleaguered businesses.

To prevent GDP from contracting in the first quarter, there has to be a lot of recouping in the 10 weeks following the shutdown. GDP can grow at 3% if there is a recovery of losses and the lockdown ends on April 14. Two factors that will have to aggressively drive this recovery are government expenditure and banking reforms, both expected to augment credit to all the sectors. Growth could be lower at 1.5-2% if this does not happen.

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COVID-19: Implications on Regional Industry and Economy

Impact on Regional Industry

Punjab

With the Punjab industry facing heat because of a massive drop in demand for industrial products due to coronavirus scare, there is an urgent need of relief in the shape of deferment of payment of the goods and services tax, cut in the bank interest rate and immediate release of the tax refund to stay afloat in the time of crisis.

Already being hit hard because of tepid demand, the industry expects Punjab Government to defer the payment of electricity bills, property tax and other statutory dues for at least two months.

Almost all industrial verticals in Punjab -- bicycle, garment, auto parts, hand tools etc, have been hit because of the steep drop in demand for products, the industry said.

To address the problem of migrant labourers and prevent their exodus amidst the COVID-19 crisis, the Punjab Chief Minister has directed all industrial units and brick-kilns to commence operations while adopting safety provisions.

Haryana

In Haryana, even as employees at several multinational corporations and IT firms in Gurgaon have started working from home as a precautionary measure against COVID-19, this isn’t a viable option for those in the manufacturing sector.

Almost on the verge of collapse due to the COVID-19 outbreak, Haryana’s poultry industry which has suffered losses to the

tune of over ₹ 2,500 crore in the past one month is looking for revival. The State Government's go-ahead to the sale of eggs, poultry, meat, and fish during the lockdown is expected to breathe life into the poultry industry.

Facing existential crisis amid lockdown, restaurants of Haryana have requested the State Government to extend their liquor license renewals by three months. They have also sought that the period of lockdown is treated as a non-fee period. In addition to this, they have requested a moratorium on payment of value-added tax (VAT) for at least six months.

The Haryana Government has issued an advisory to industries and commercial establishments in the state, asking them not to terminate their workforce and deduct wages during the current lockdown, enforced to check the spread of COVID-19.

Himachal Pradesh

The tourism industry, which is the largest employer in Himachal Pradesh, is staring at one of the worst times as thousands may lose their jobs and many hoteliers may go bankrupt in the next few months despite three-month EMI moratorium.

COVID-19 has had a foul influence on Baddi's pharma business in Himachal Pradesh. The uncooked materials for the pharma business are imported from nations like China. Now, as China is severely affected by the virus, the availability of

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COVID-19: Implications on Regional Industry and Economy

uncooked supplies have been disrupted.

Due to this, the costs of medicines have elevated. Not solely this, the availability of uncooked supplies on the home entrance has additionally come down by 50% since vehicles are not operating on the roads because of the lockdown.

The outbreak and a freeze in the freight and logistics industry that followed the pandemic may lead to a huge collective loss for the fruit growing farmers across the state. Some of the districts in Himachal Pradesh, including Kullu and Mandi are dependent on apple farming only. In these areas, farmers are not much dependent on crop loans but they certainly take other loans from banks which may not be repaid in the coming months if the whole farming and selling cycle is not be completed on time.

The estimated loss of Indian Industry

Although on a brighter side, according to a Nielsen report, the hand sanitizer category witnessed a whopping 53% growth in February vs year ago (against 11% growth in the previous three months). ITC’s recently commissioned manufacturing facility in Himachal Pradesh has commenced the production of sanitizers to cater to the soaring demand. The facility designed to produce premium fine fragrances will now help produce an additional 1,25,000 litres of hand sanitizers.

Source: https://www.statista.com/

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COVID-19: Implications on Regional Industry and Economy

About the FICCI report

This report provides insight into COVID- 19's impact on industry and economy of Punjab, Haryana, Himachal Pradesh and Chandigarh.

By March 11, 2020, that is when the WHO declared COVID-19 as a pandemic, its impact was being felt by 7.8 billion humans across the globe. While India's internal buffers ensured that it was not too affected by the financial crisis of 2008, even if the GDP growth slipped from 8.5% to 6.5%, this time around, given the pre-existing economic slowdown on which the COVID- 19 crisis is acting, the fears are of GDP growth falling below 4% officially.

In this context, FICCI Chandigarh is pleased to present its evaluation of the pandemic's impact on aforementioned states to its industry members.

Structure of the Report

Aiming to fulfil our responsibility of presenting information to the industry partners, the report discloses information on the impact of COVID-19 on regional industry and specifically to key industries of Punjab, Haryana, Himachal Pradesh, and Chandigarh. The insights are based on

the state industry policies, opinions, news articles, various blogs, specific reports, etc.

published in the public domain. The report further gives recommendations for the State Governments to implement on industry-friendly policies, and makes key suggestions to industry partners for better equipping themselves for the pandemic and its aftereffect.

Period Covered by the Report

March 1, 2020 – April 10, 2020

*Also includes some information on policies, targets, and plans for fiscal 2020 and thereafter.

Scope of the Report

Primary research is based on industry survey from 15 sectors across the States of Punjab, Haryana, Himachal Pradesh and UT Chandigarh, revealing insights on the impact of COVID-19 on revenue, cash flow, inventory, etc. and their key recommendations to the State Governments. Personal interviews with key industry leaders were also conducted to gain a broader perspective on sector- specific impact.

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COVID-19: Implications on Regional Industry and Economy

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COVID-19: Implications on Regional Industry and Economy

Punjab—Agriculture

The lockdown in India's breadbasket of Punjab, in the wake of the coronavirus disease outbreak (COVID-19), has put its rural economy into an uncertain and desperate situation. People in Punjab, especially in rural areas, are in a state of palpable unrest over issues including harvesting of the standing wheat, unemployed rural labourers, the struggling poultry sector as well as the migration of the masses amid the lockdown. Small and marginal farmers, as well as farm labourers, are the most affected in the state due to the breakdown of supply chains.

The wheat harvest in Punjab is among the most enormous agricultural operations, not only in India but in the entire world, as the farmer aims to prepare his fields for the subsequent crop while the government has to ensure that the product moves safely from mandis to warehouses. Punjab had produced 18,209,000 tonnes of wheat last year, according to the Economic Survey 2018-19. The state had 3,520,000 hectares under wheat cultivation and the yield per hectare was 5,173 kg.

Apart from the diaspora, Punjab’s other challenge is to contain the exodus of migrant labourers, who are the backbone of agricultural activity in several parts of the state. With the borders sealed, thousands of migrants are stranded on national

highways. In the absence of public transport, scores are still trying to return to their native towns and villages.

With the commencement of harvesting season, there is widespread apprehension.

Apart from wheat, the other crops waiting to be harvested are soybean, pulses, chickpea, and mustard. Farmers, farm labourers and those working in mandis have been allowed to work provided they maintain hand hygiene and social distancing norms.

With the lockdown threatening to send the state’s economy into a tailspin, State Chief Minister has asked the finance minister to prepare a revival plan. This, however, will require a holistic overview of the situation and much out-of-the-box thinking.

To streamline management of coronavirus crisis, the Punjab Government has constituted four committees to monitor key aspects of health sector response and procurement, lockdown implementation, media and communication, and agriculture and food.

The farmer's associations have urged for starting special trains both for goods and services as well as labour. It was also suggested to lift produce directly from the farmers.

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COVID-19: Implications on Regional Industry and Economy

Punjab—Textiles

Punjab's textile industry accounts for 19%

of the total industrial production of the State and contributes about 38% of the total exports from the state. Its textile sector is strong on all aspects of the value chain, i.e., from the raw material stage to the finished products (garments) stage.

Textiles and apparel sector production is expected to decline by 10-12% in the April- June quarter owing to the coronavirus pandemic, according to a study by KPMG in India. Though the Punjab Government has allowed willing industrial units to start operations during the ongoing curfew to check exodus of migrant labourers, it is not going to help much as it is not viable for most of the units to function in such a situation. The Khanna-Mandi Gobindgarh cluster units hardly have any raw material and even if they start production, they do not have the means to transport the product to the end-user. The industry which has Rs 10 crore investment is suffering Rs 30 lakh loss per month.

The state’s labour-intensive industries, such as textile, hand tools, leather, sports goods, bicycle, and automobile parts, are dominated by migrants. Textile in Ludhiana, Jalandhar, Ropar, Anandpur Sahib, Hoshiarpur, Gurdaspur, Pathankot, Patiala, and Sangrur are also migrant labour-dependent.

Neither is it feasible for other industrial units to start operations nor do they have the facility to provide shelter to the workforce. Now that nearly 80% of migrant labour has returned to their state, there is just not enough manpower for operations to start.

In a glimmer of hope for medical specialists, health workers, policemen and other allied workers who lack high-quality protective gear in their fight against COVID-19, Punjab's textile industry has been able to develop personal protective equipment (PPE), especially hazmat (hazardous materials) suits, which are not only of high quality but will cost just a fraction of the price of imported ones. So far, the Union Government has placed an order for 15 lakh pieces of hazmat suits and PPE worth ₹150 crore with three textile manufacturers of Punjab from Ludhiana.

Here are a few suggestions by industry members which if swiftly acted upon can avert a potentially explosive situation:

• Wage Support

• GST Refund

• Special Package of Incentives for the Export sector

• Interest Subvention

• Reduced GST

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COVID-19: Implications on Regional Industry and Economy

Punjab—IT, Electronics and Power

Consumer electronics and appliances makers are staring at an obvious financial slowdown as companies are forced to suspend manufacturing operations to contain the spread of the infectious coronavirus (COVID-19). Industry looks at 2020 as an 11-month financial year now and is aiming at achieving its annual targets in that time. Analysts say the electronics sector was already grappling with supply constraints for the last two months and now will be impacted more due to a shutdown of manufacturing units in China. The light engineering goods industry in Punjab including bicycle and bicycle parts, machine tools/hand will be affected the most.

The Punjab State Transmission Corporation Limited (PSTCL) has announced the curtailment of power under force majeure clause (outbreak of COVID- 19) from the projects generating renewable energy until the pandemic lasts. A ‘force majeure’ is declared in the event of unforeseeable circumstances that prevent parties from fulfilling a contract.

The corporation has instructed the renewable generators to discontinue their generating facilities immediately from the Punjab State Power Corporation Limited and PSTCL systems until the COVID-19 epidemic lasts. The state agencies are citing the force majeure clause under their power purchase agreements (PPAs) signed between the renewable generators and

PSPCL. The coronavirus pandemic is proving to be the biggest challenge for the solar power industry this year, and its repercussions are being felt all across the globe.

The IT and e-commerce sectors will also face the challenges due to COVID-19 and may see a dip in growth in the state.

Customers may accelerate their journey towards Cloud and Digital adoption to minimize human touchpoints. This should create huge business opportunities for IT companies.

There will be increased pressure on the supply chain for deliveries of products.

Another challenge for eCommerce companies is that they will need to equip their employees with the appropriate resources to manage operations remotely with little or no disruption.

Going forward, it could be expected for companies to explore newer distribution channels focused on a ‘direct to consumer’

route. Further, the ability to predict and manage demand will be a gamechanger. In this environment, shoring up the customer relationship while focusing on the bottom line will be key specifically for Punjab state.

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COVID-19: Implications on Regional Industry and Economy

Punjab—MSME and Service Industry

Punjab has one of the highest proportions of the workforce in the services sector among select states. Among the sub- sectors, trade, hotels, and restaurants employ the highest proportion of the workforce. In search of better opportunities, workforce is shifting from agriculture to the service sector as well.

Punjab’s MSME industry will have to incur huge losses. As per the estimate, Ludhiana’s micro, small and medium enterprises (MSME) industry will suffer losses between ₹1,200 and ₹1,500 crore, while the total loss of Punjab’s industry would be around ₹3,200 crore during these seven days.

Trade & repair services and hotels &

restaurants together employ 41% of the total workforce within the services sector.

Other services which include education services, health services, entertainment, etc. together form the next major employer.

About 30% of the workforce engaged in these services are being impacted due to pandemic.

A study by the All India Manufacturer’s Organisation (AIMO) estimates that about a quarter of over 75 million MSMEs in India will face closure if the lockdown due to COVID- 19 goes beyond four weeks and this figure is estimated to touch a whopping 43% if the situation extends beyond eight weeks.

The impact will be high because these MSMEs provide employment to more than 114 million people and contribute around 30-35% to the GDP. The MSMEs are affected at several levels with the national lockdown, the production facilities and retail has been hit the big time. Micro enterprises specifically in the services sector are considerably impacted.

RBI’s announcement of a three-month moratorium on repayment of term loans and a reduction in the repo rate will provide some relief. While the rate cuts could lead to a reduction in banks’ MCLR and external rates, which, in turn, will reduce the borrowing costs for MSMEs as well as individual borrowers, deferment of payments is expected to provide a big relief to borrowers, especially small traders, who have faced a complete halt in their activities.

However, the request from several industry members is to waive the interest on the working capital (WC) loans for this period as practiced in other countries. The moratorium on payment of loan instalments for the next three months without affecting the credit rating is a big relief for now, especially for the self- employed and middle-class borrowers. The Finance Minister has also deferred statutory payments to June 30, which is a big relief, as felt by SME industry representatives.

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COVID-19: Implications on Regional Industry and Economy

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COVID-19: Implications on Regional Industry and Economy

Haryana—Agriculture

Being in the midst of the coronavirus crisis, good seeds and other farm inputs must reach farmers in time for the Kharif season.

Haryana is self-sufficient in food production and the second largest contributor of food grains to the central pool. The Department of Horticulture has encouraged a cluster approach for the development of fruit cultivation. Wheat, sugarcane, rice, cotton, rapeseed, and mustard are key agricultural products of the state, all being affected.

The State Government, meanwhile, has allowed the shops that sell agriculture machinery and spare parts (including its supply chain) to open, indicating that harvesting will go ahead as usual.

Farmers have decided to delay harvesting the rabi crop as much as possible in the absence of any directions from the government on how to manage the product after it is cultivated. The harvesters have not reached their fields either, crucial now because there simply aren’t enough farmhands available, thanks to the massive exodus of daily wagers after the COVID lockdown. Haryana alone needs around 10,000 mechanical harvesters during this

time of the year. By a rough estimate, only 4,000 such machines are available with the farmers as of now.

As the state is in a crucial phase of harvesting of Rabi crops and sowing time for coming crops i.e., crops of kharif season -- the main season for agricultural production, farmers may need inputs on immediate basis.

As per the industry members, the State Government should classify essential food items and ensure zero hurdle supply chain mechanism for processing and retail to help consumers, food industry and farmers.

April and May are the most critical months for the supply of seeds and crop protection products. If this cropping window is missed, there will be serious shortages in the rest of the year. It is suggested that the seed production and crop protection product manufacturing and supply should be treated as essential services and exempted from any shutdown. The industry should be encouraged to take all precautions, any closure would severely impact the supply of seeds and crop protection products to the agriculture- based industry of Haryana.

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COVID-19: Implications on Regional Industry and Economy

Haryana—Automotive

The automotive industry will take a hit of

₹2,300 crore or more in revenues, daily, as a result of the production shutdown announced by automakers and component suppliers, according to the Society of Indian Automobile Manufacturers (SIAM).

Haryana being a preferred destination for auto majors and auto component manufacturers will be impacted the most.

The state produces two-thirds of passenger cars, 50% of tractors and 60% of motorcycles manufactured in the country.

A significant percentage of the state’s workforce is engaged in the automotive industry; Gurgaon & Faridabad are important automobile centres. Due to the pandemic, the continued cash flow tightening will impact the market further.

For passenger vehicles and two/four- wheeler segment demand is likely to continue to be muted, as this segment is significantly impacted by economic/market sentiments and consumer purchasing power.

For commercial vehicles segment with a shutdown of all non-essential services, the demand for commercial vehicles is expected to further plummet as liquidity and cash crunch has already put a dent in

sales of fleet operators, which is expected to further widen in the coming months.

The auto original equipment manufacturers (OEMs) will need to delay any new launches by at least a few quarters, or till sentiments improve. The auto components sourcing might get dearer due to disturbance in the supply chain across the globe. However, the state’s auto component industry can emerge in the medium to long term as an alternative source of supply if duly supported by the policy framework.

Here are a few suggestions by industry members which if swiftly acted upon can avert a potentially explosive situation and for easing financial stress in the sector:

• Operational benefits in the form of a wage subsidy to small industries or income support for contract workers for three months.

• Reduction in interest rates on delayed payment of tax for three months.

• Develop a repayment support scheme for automobile and related firms, especially the dealers and auto component manufacturers and sellers.

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COVID-19: Implications on Regional Industry and Economy

Haryana—Information Technology and ITeS

Haryana is among the leading states in terms of IT exports. The industry employs about 45-50 lakh, of which smaller firms account for about 10-12 lakh. The top five IT firms alone employ close to 10 lakh people.

IT and IT-enabled services companies may have to trim their workforce or hire more flexi staff as part of cost-cutting measures with projects getting delayed due to the COVID-19 pandemic. Contrary to popular belief that flexi staff could be the first to be laid off during such times, experts believe they may have an advantage as they come with variable cost structures and minimal compliance requirements.

The Gurugram’s IT-ITeS sector tops flexi- staff adoption with around 12 out of every 100 employees being contractual or flexi staff, according to the Indian Staffing Federation (ISF), the apex body of the domestic flexi staffing industry. The sector’s flexi workforce is expected to grow to 720,000 by 2021 from 500,000 in 2018, according to ISF. The move towards contract hires has been a trend across industries, but it had become more visible in the IT-ITeS sector because of the high requirements for project-based work.

However, the current uncertain business environment due to COVID-19 is forcing organizations to review their business and employment strategies.

As a result of a continued slowdown in business, companies must ensure tight control over costs and trimming of staff will be one of the many measures that will be used. When this stage does arrive, IT- ITeS companies will use factors like skills

& competency, outcomes & impact, and costs & compliance when deciding which employee types will be given a trim as most IT-ITeS companies do not make public the number of flexi staff they employ.

If COVID-19 becomes a long-term phenomenon, all companies will have to bear the brunt with varying degrees of impact. Start-ups are already feeling the heat as they are unable to bear the losses.

For the IT sector, a lot of the business comes from outside of India with high exposure to the US and Europe, so it’s even more uncertain.

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COVID-19: Implications on Regional Industry and Economy

Haryana—MSME and Service Industry

Coronavirus epidemic has kept both Central Government and States’ on its toes.

Since it came to India, it has prompted them to take umpteen measures especially for the Micro Small and Medium Enterprises (MSMEs) sector in the country.

The state’s services sector activity contracted during March as the COVID-19 pandemic dented demand, particularly in the overseas markets, while public health measures aimed at stemming the outbreak curtailed discretionary spending, according to a monthly survey.

The IHS Markit India Services Business Activity Index was at 49.3 in March, down from February's 85-month high of 57.5, as the new coronavirus pandemic pulled the service sector into contraction. The headline figure fell by over 8 points, undoing the strong gains in growth momentum seen throughout 2019, the survey said.

The State Chief Minister has announced relief for MSMEs, industrialists, businessmen, and others using big power connections. If the consumption for 50KW is 50% or less, then the fixed charges of the last and the present month will be waived while for high-tension connections larger than 50KW, the fixed charges up to a maximum limit of ₹10,000 will be waived in the bill.

Here are a few suggestions by industry members which if swiftly acted upon can avert a potentially explosive situation and for easing financial stress in the sector:

• Increasing the Open Cash Credit (OCC) Account limits for MSMEs by 20% would have a positive impact on the liquidity available with the MSMEs. This limit could be reviewed every month and revised as per the prevailing situation.

• Banks may be asked to substantially ease the margin requirements and make ‘stocks’ and ‘receivables’

totally interchangeable for security purposes.

• Salaries/wages could be paid through ESIC or there should be as the assistance of 50% from the Government side towards the pay- outs.

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COVID-19: Implications on Regional Industry and Economy

Himachal Pradesh—Agriculture and Allied Industries

The coronavirus outbreak has hit Himachal Pradesh with a whammy. The state is one of the largest producers of off-season vegetables and exotic fruits and the second- largest producer of apples and almonds in the country. With the state having closed its borders before the national lockdown, the agriculture allied industry, on which livelihood of many hundred-thousands of people depends, was completely shut down.

There is a potentially catastrophic disruption of the state’s famed apple crop.

Shimla’s apple bowl, comprised of areas like Jubbal-Kotkhai, Rohru, Chopal, Kotgarh, Thanedar, Kumarsen, and Matiyana, is afraid of the impact of corona on the next crop season with small and big apple growers fearing that the present unfavourable conditions would adversely impact a timely, healthy, nutritive and rich produce.

Necessary preparatory work on the farms and orchards during March–April is being severely hit. The supply of insecticides, necessary nutrients and other inputs like anti-hail nets and honey bees that help in the pollination process, are all disrupted by

the lockdown that is also preventing farmers from going to their orchards.

Horticulture scientists, on their part, have expressed concerns about weather uncertainties and prevailing low- temperature conditions.

The worry of fruit growers is not just the lockdown effects on apple orchards but also farms growing cherries, pomegranate and green almonds which will not be able to reach the markets as transportation is likely to remain an issue when the crop matures in July-August.

Although all food-based industries are allowed to function normally. There are few issues on interstate movement of skilled and semi-skilled labour that needs to be sorted out. Raw material supplies are not impacted as of now and the measures taken by the State Government should ease supply chain issues. Factories should adjust to working with less labour force and overtime to meet demand. Domestic market-based players should not have a problem if lockdown is lifted soon.

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COVID-19: Implications on Regional Industry and Economy

Himachal Pradesh—Pharmaceuticals

The pharmaceutical industry in Himachal Pradesh, which according to State Government records meets 35% of pharma formulation demand of Asia, is facing closure due to lockdown. While pharmaceutical manufacturing is exempted from the lockdown, the non-availability of labour, lack of clarity over transportation for ingredients (e.g. packing material) and physical distancing have bottlenecked production volumes.

Supply and distribution of essential medicines, sanitizers, and PPEs (masks, gloves, etc.) are impacted, also there is a production slowdown due to raw materials and ancillaries not reaching factories. High exports demand is predicted for certain products over the short term – as developed countries (the U.S., EU, etc.) look to stockpile medicines.

There are around 750 units of pharma in the Solan and Sirmaur area of the state including 150 units of cosmetics.

Lockdown orders affected the movement of raw materials from various parts of the country and the dispatch of ready stocks.

Also, the workforce for operating machinery, loading, unloading and packaging is missing. The analysis revealed that 80% of production is hampered this time in these pharma units.

Though the Himachal Government and its officials are working on solutions, many issues are yet to be resolved. Everything right from the movement of empty bottles

to delivery of goods to the retailer is hampered in rural areas due to the lockdown. The industrialists fixed a target to start production by adopting strict measures of social distancing and talks are on in this regard.

Government order permits these industries to engage 50% of their staff. But many of the pharma units opted for volunteer shut down as most of their workforce resides in neighbouring states of Haryana and Punjab.

There is an urgent need to ensure the availability of essential medicines at the customer.

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COVID-19: Implications on Regional Industry and Economy

Himachal Pradesh—Tourism

Tourism is one of the most important sectors for the state economy in terms of foreign exchange earnings and the creation of employment opportunities. The tourism sector of Himachal Pradesh contributes 6.6% to the state GDP. Domestic tourist inflows in the state reached 16.09 million in 2018 while foreign tourist arrivals reached 3,56,000. For the first time in decades, hoteliers are unoccupied in April, which otherwise had been starting month of their peak tourist season. With lockdown in place because of coronavirus pandemic, the tourist movement across the state has come to a complete standstill.

Thousands of hoteliers, restaurant owners, and travel agencies are worried about salary and wages of the staff. The hotels and travel agencies have been closed completely since mid-March. Half of the employees from other states and districts had returned home before lockdown. Local staff also moved to their places. But almost half of the employees are still stuck in hotels and at workplaces.

The association representing 700 hotels and 350 home-stays in the largest district of Himachal Pradesh at Kangra have urgently petitioned State Government seeking support to retain staff, rebates in taxes, waiver of electricity bills and garbage collection. In the battle against COVID-19, all the hotels are closed since last month.

On account of COVID-19, the tourism and hospitality industry are staring at a

potential job loss of around 38 million, which is around 70% of the total workforce.

There is an urgent need for the State Government to slash GST rates on hospitality for at least six months, since currently large hotels are charged a GST rate of anything between 12-18% based on room rate charged. Now that hotels are almost empty, the GST rate should be brought down to 5 or 6%, with immediate effect. Also, support packages to fund and support salaries of the employees in the Tourism, Travel & Hospitality industry.

Globally, many countries have announced such support measures.

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COVID-19: Implications on Regional Industry and Economy

Chandigarh

Chandigarh has the presence of over 2,900 small scale and 15 large and medium scale units. About 40% of industries are ancillary units that manufacture components for tractors. With shops and manufacturing units closed due to the curfew imposed to stop the spread of coronavirus disease (COVID-19), traders fear economic recovery will be difficult.

Other industries based in the UT include IT, electronics, pharmaceuticals, machine tools, and plastics. Rajiv Gandhi Chandigarh Technology Park (RGCTP), developed in two phases, has been accorded the SEZ status. It is for the first time that all business activity, trading, and manufacturing, has been shut down in the city.

There is great uncertainty among businessmen as to what the future holds. In the city’s industrial area, more than 30,000 are employed in manufacturing and service units. Beyond the short-term struggle, the industry will need major impetus from the government in the short and long term.

There should be a moratorium period or extension of six months for payment of liabilities including utility bills, taxes, and duties to the government.

The industry is also seeking loan accounts, which became non-performing assets (NPA) during the lockdown, to not be considered wilful defaulters.

Stimulus package for MSMEs (Micro, Small and Medium enterprises) should be considered for the financial year 2020- 2021. Financial support for unorganized sectors will also be required.

Chandigarh beopar mandal wrote to Prime Minister, Punjab Governor and UT Administrator seeking help, as they struggle to deal with the acute economic crisis caused by the pandemic, requesting the government to allow to pay employees

₹4,000 to ₹5,000 per month as ration cost till the lockdown continues. As most of our traders have taken overdraft/CC limits or term loans to run their businesses.

To resolve the issue of payment of wages to more than 25,000 factory workers in the city, the UT administration has started issuing curfew passes to factory officials to allow them to disburse wages.

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COVID-19: Implications on Regional Industry and Economy

Due to restrictions on movement imposed because of the lockdown, both factory owners and workers have been facing problems with the disbursement of wages.

Various industry associations had taken up the issue with the administration.

The UT labour department, too, has contacted industrialists and factory owners regarding payment of wages to the labourers. Efforts are being made to ensure that the labour is paid wages at the earliest.

Here are a few suggestions by industry members which if swiftly acted upon can avert a potentially explosive situation and for easing financial stress in the sector:

• Exemption of MSME accounts from NPA classification (which was in force till 31.03.2020) to be extended till the end of June

• The banks may be directed to provide funds to ease out the working capital requirement and monthly expenses related to utilities, paying of wages, etc.

• Trade Receivable Discounting System (TReDS) should be made effective and all pending payments should be mandatorily cleared in the next 15 days.

• The date to deposit advance tax should be extended by six months

• All GST and other tax refunds should be credited to the businesses immediately to tide over the lack of fund availability with the enterprises.

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COVID-19: Implications on Regional Industry and Economy

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COVID-19: Implications on Regional Industry and Economy

Survey Outcomes

Though many experts have studied the impact of COVID-19 on region’s businesses and made suitable recommendations, there is a need for a more focused approach i.e., to

highlight actual and potential losses at a regional/state level and work out recommendations tailored to regional/State industry's need.

In this context, FICCI is pleased to share the survey highlights:

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COVID-19: Implications on Regional Industry and Economy

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COVID-19: Implications on Regional Industry and Economy

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COVID-19: Implications on Regional Industry and Economy

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COVID-19: Implications on Regional Industry and Economy

What steps could the Government take to mitigate the hit on your industry?

Respondent Responses

1 The government should give relief to MSME.

2 The government must provide tax relief for at least 1 year so that industry can pay regular expenses.

3 The government should give a relief package.

4 A full financial year should be skipped for any taxes, interests, and bills.

5

Govt of India like in the USA should help MSME by giving interest-free loans so that they can continue to operate once the lockdown is over. A lot of companies are planning to shut the shop after the lockdown.

6 Wage subsidy at least 70 % and no rent payable for at least 3 months.

7 The government should announce more flexible schemes /loans for the small business entrepreneur.

8 Soft collateral-free loans for start-ups and MSMEs.

9 Moratorium period for loans, rebate on fixed charges for electricity consumption, GST/ income tax/ other compliance deadlines extension.

10 The movement of raw materials by interstate road transport should start immediately.

11 Provide a subsidiary or take up the majority portion of manpower expense.

12 Provide short term working capital loans at a low (zero) interest rate.

13 The government should provide economic health and relaxation in taxes.

14

Increase custom duty to 20% on HS code 8302, subsidy on power bills, and availability of cold-rolled products at international rates and ensure the availability of labour.

15 Financial help to pay debits or EMI’s on time.

16

Govt. should take the steps for the betterment of industries to arrange the advance funds pay for the raw procurement in advance or wages for the employees for the next three months.

17 Bank Mitras are the true foot soldiers of banking in rural India. Their livelihoods need to be safeguarded.

18 The economic package should consider a fixed commission of ₹ 10,000 per bank Mitra for the next 3 months to tide over this difficult period.

19 Interest subsidy on cc limit and salary compensation.

20

Extend timeline for renewal of license and brand, exempt from the quarterly limit of overtime and exempt from weekly holidays to compensate with non- working days of shutting down period.

21 Electricity bill to be waived off.

22 Interests of banks should be waived off and their EMI’s to be postponed

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COVID-19: Implications on Regional Industry and Economy

23 The mandate to pay workforce during lockdown should be waived off 24 Payments from large companies, PSU’s and the government should be

immediate.

25 Special sops to start stagnant SME’s.

26 Income tax should be set aside.

27 To begin with write off EMI, financial support for MSME to keep the business running even if small incentives—maritime industry and training.

28 Extended cash flows and the government should ensure timely payment for the contract.

29 This order to pay salary/benefits to workers be withdrawn and workers be compensated by the government.

30 Waive off electricity and contingencies bill for 3 months.

31

Banks have still not announced any waiver on the interest of cc/deferment of interest and EMI and they should be asked to waive and not defer interest and EMI for 3 months.

32 ESI payments should be waived.

33 Rent be deferred for units working from rented premises.

34 Increase liquidity, help us with our fixed costs and lower finance costs.

35 Should waive off electricity and water charges for three months.

36 Should also ask banks to increase current od limits to 15% more to coup up financial crunch due to COVID-19.

37

Share the salaries budget, help in cash flow through the bank, change the definition of micro-industry under MSME for companies up to 10 crores, reduce the rate of interest on OD limits or other bank products for MSME.

38 Reduce the rate of interests, release govt pending payments.

39 The government should provide insurance to perishable raw material stock which has self-life.

40

An economic package to the SME sector is required. Movement of goods, manpower is still facing challenges. District level understanding of government orders is very different, leading to blockages of the supply chain.

41 Give remedy to industry to sustain ourselves once we open give relief on taxes

42 Ensure prices of R/M, transportation does not surge upwards as the lockdown is withdrawn.

43

Electricity bills, water bills, telephone and statutory dues like PF, ESI, and other taxes should be deferred or discounted for min 3-6 months for industries.

44 Wages and salaries of the lockdown period should be borne by the government, at least 50%.

45 Govt may digitalize most of the approval processes during this period.

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COVID-19: Implications on Regional Industry and Economy

46 Financial support in terms of reimbursement for wages, salaries, and electricity.

47 Take care of wagers for the working capital requirement of the industry 48 Offer Monomorium for all interest for 3months. Support for ESI and EPF to

the labour.

49

Loan interest rate reduction to 3%, raw materials cost should be reduced, government bills should be postponed, GST also should be postponed or to be taken in EMI's.

50 MSME industries should be compensated by the government according to their turnover

51 Loosen the credit facility for businesses to survive. Relaxation in interest cost. The government should focus on infrastructure to grow the economy.

52 Need support in terms of necessary permission(s), labour, transportation and raw material from allied industries.

53 Rebate in tax, providing loans with a very low-interest rate and long term.

54

Central and State Governments can reduce taxes for the transportation industry (passenger/road tax etc). Also, some technical compliances for operations (fitness, emission standards, etc) should be relaxed. Commercial loan moratorium extension up to 6 months should ensure adequate revenues to service loans. Essential service mapping should be shared by the private sector to enable them to continue services.

55 Reduce GST slab and focus on delayed payment act.

56 Govt should instruct the bank to provide an overdraft in the current account as per the sale figure of the unit.

57 Sanction a collateral-free quick loan to tide over the current crisis.

58 Announce a more generous financial package for MSMEs. They are all shut, with all fixed charges ticking.

59 Complete liberalization of permits in the passenger mobility segment.

60 Waiver of passenger tax, road tax, and tolls

61 Partnership with govt for enhancing public transport capacity.

62 Fixed charges on power should be waived off during the lockdown period.

63 Allow the truckers & transporters free movement.

64 Minimum charges of electricity removed.

65

GST should be waived off, electricity minimum should be cancelled, increase cash flow by infusing infrastructure projects, bank interest should be lowered and the government should focus more on MSME which is the highest job give₹

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COVID-19: Implications on Regional Industry and Economy

Interview Outcomes

Key insights from business leaders

Agricultural Machinery & Equipment

“We are looking at a 10-15% of revenue loss in FY 2020-21 due to this lockdown. Non- banking Financial Institutions (NBFIs) that cater to the majority of loan needs in agriculture in Punjab are shut and will take some time to build confidence for lending at their pre- lockdown pace. Thus, there is a serious case of farmers not having enough to order machinery this harvesting season. On the other hand, with the supply chain affected, we are estimating the first-week post lockdown to be only about collecting the raw material, further pushing the dates for rolling out machines. Lifting of lockdown on April 14 is therefore very critical for us. There will still be some hope of not missing this harvesting season for orders if that happens.”—Respondent A

Waste Management & Recycling

“As far as bio-medical waste is concerned, I am looking at an increase there. I expect a decline in industrial scrap as manufacturers will take time to ramp up manufacturing again.

Anyhow, our company is looking at a 3-month duration for business to normalize after this lockdown is over. Financially, our revenue target for FY 2019-20 is already achieved and we are only affected for March 2020, where we are short of INR 2 crore target due to lockdown. But we are confident that the government will take necessary steps and don’t see the aftereffect to go anywhere beyond the next quarter. We are therefore also not revising our numbers for FY 2020-21.” —Respondent B

“A vital point of discussion is how waste management compliances would pan out and if there would be any reduction in EPR targets for producers for a year. If it happens, it will have a ripple effect on waste managers who have already received recycling contracts and may see cancellations, hitting margins hard. Also, the waste management and recycling sector are far from being organized. Most of the industry players fall under the informal category, they neither are registered with Government nor have any banking linkage. Under such circumstances, how will the Government or banks identify and reach them to offer livelihood support in this need of the hour is the question.” —Respondent C

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COVID-19: Implications on Regional Industry and Economy

Textile and Apparel

“On an estimate, the apparel industry has faced a revenue loss worth 40 days out of 365 days in FY 2019-20 due to COVID-19 lockdown. Looking ahead, 8 months of the manufacturing business is gone for FY 2020-21. We get orders in February-March to be shipped in June- July. All received orders are either cancelled or are on hold. If the lockdown continues, those kept on hold will be cancelled too. With this, we have lost the complete season of summer- spring 2020 without any business and are expecting the impact on the fall season as well.

Small and medium scale exporters will be hit harder, many may go out of business. The government has to be liberal in giving loans and extending support so that these industry members may survive.” —Respondent D

Manufacturing

“Our polyester films are used in packaging of both essential and non-essential items. The reduction of our product’s demand in the essentials segment is less likely, but we do expect our other segment to be heavily affected. As far as financials are concerned, it is too early to assess for a quarter or a year; speaking of a shorter run, we are looking at 50% revenue loss for April 2020, that is if lockdown is lifted as scheduled. Close to 25% product of polyester film industry is exported to Europe, the Gulf, West Asia and the rest of the world. It is uncertain as to how this export demand will pan out in the coming months and this may put pressure on margins.” —Respondent E

Transportation

“Shared passenger mobility segment is at a complete standstill. We have zero revenue for the lockdown period and are expecting it to stay that way until the government resumes mobility services. Post pandemic, business recovery is estimated to span out from anywhere between 9 months to a year. There may be some specific guidelines on how to conduct mobility during the recovery phase, an example could be the 25% occupancy order that was put on DTC and Delhi Cluster buses when mobility was being restricted a while before the lockdown. If that comes to be, our company is reasonably positioned to implement such social distancing measures in its services.” —Respondent F

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COVID-19: Implications on Regional Industry and Economy

Retail

“Business in retail is going downhill fast. High margin commodities such as apparel and footwear are already out of shelves. State Governments have allowed for home delivery of essentials; however, logistical hindrances and movement restraints have put a halt on that business segment as well. Even if the lockdown gets over, until COVID-19 subsides, it is difficult to imagine malls to have traction like before.” —Respondent G

Pharmaceutical

“About 70% of APIs (Active Pharmaceutical Ingredients) used in Indian pharmaceutical production are imported from China. Until a few days back, pharma units were relying on available API stock that was imported before the Government ban. Though the ban is lifted now, concerns on the supply chain remain as it is. At the current consumption rate, any delay in raw material shipment can cost the industry heavily. Export is also hindered due to logistical bottlenecks and restrictions put on cross-border goods movement. Orders may stand cancelled if the Government doesn’t step in and facilitate smooth transportation.” — Respondent H

Media & Entertainment

“Hope is lost in the box office. Roughly estimating, Bollywood and Punjabi film industry is down by about 700-800 crores and 75-80 crores respectively. Post-lockdown, ticket booking will not be suddenly rising to normal as the audience will be skeptical of moving out of their homes. We are expecting fierce competition in distribution as there will be a shorter window to release movies this year. Against assumptions, the online streaming business is not profiting either. The cost of content delivery has spiked up due to logistical and other costs;

at the same time, revenues that are based on advertisements are coming down. Heavy loans have been taken from financial institutions. The industry needs Government support to break out of this crisis.” —Respondent I

Food Processing

“Lockdown has affected the distilled beverage industry. Retailers have shut shops and their stock is struck. Restaurants and bars, which form the most important distribution segment for our industry, are at a more critical position. This is because once lockdown is lifted, retailers may find customers but it will take quite a time for people to finally dine out or throw parties. Speaking across distribution channels, change in consumer patterns is anticipated.

Premium brands may suffer due to shifting of demand to low and medium-ranged beverages.” —Respondent J

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COVID-19: Implications on Regional Industry and Economy

Key Recommendations to Government

Agriculture and Food Processing

• States governments should classify essential food items with zero hurdle supply chain mechanisms for food retail and food industries to help consumers, food industry and farmers.

• There should be strict regulations against rumours impacting farmers and food processors. E.g. poultry

• The food packaging industry should be allowed as an essential category.

• The existing infrastructure of GST, FASTAG should be used for the smooth movement of essential food items. This will help in the long-term stability of the food sector.

• Dedicated food transport corridors to be announced pan India with no stoppage at borders.

• States may supply Agri inputs free of cost for the upcoming Kharif season to ensure stable food production.

• Domestic and export market incentives to be introduced for FY21 to process and liquidate inventories.

• Registering unemployed youth as temporary staff for food and input delivery in urban and rural areas.

• E-commerce based apps should be encouraged to help the rapid deployment of delivery personnel to avoid panic buying and restrict movement in the streets.

Textile and Apparel

• The tax compliance deadline needs to be extended considering the nationwide lockdown and taxes need to be reviewed to minimize the impact of the decline in demand.

• The sector has been reeling under severe financial stress, so interest rate reduction should be considered.

• Credit ratings-based loan facilitation for MSME players needs to be reviewed to make the sector competitive/lucrative.

• Tax reliefs need to be provided, thus boosting consumer spending.

• Provide an Ad-hoc reimbursement/

concession of 5-10 % against the recently approved Remission of Duties or Taxes on Export Product (RoDTEP) scheme to compensate for the hitherto unreimbursed levies and taxes to the exporters.

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MSME and Others

• The date to deposit advance tax should be extended by six months.

• All GST and other tax refunds should be credited to the businesses immediately to tide over the lack of fund availability with the enterprises.

• No fines/penalties should be levied owing to delays in filing of statutory returns i.e. GST, tax returns, social security such as EPF, ESIC, etc.

• Demurrage and shipping charges should be waived off because of the delivery of all imports being allowed after a cooling period of cargo for almost 14 days.

• Exemption of MSME accounts from NPA classification (which was in force till 31.03.2020) to be extended till the end of June.

• The banks may be directed to provide funds to ease out the working capital requirement and monthly expenses related to utilities, paying of wages, etc.

• Trade Receivable Discounting System (TReDS) should be made effective and all pending payments should be mandatorily cleared in the next 15 days.

• Increasing the Open Cash Credit (OCC) Account limits for MSMEs by 20% would have a positive impact on the liquidity available with the MSMEs. This limit could be reviewed every month and revised as per the prevailing situation.

• Banks may be asked to substantially ease the margin requirements and make ‘stocks’ and ‘receivables’

totally interchangeable for security purposes.

• Salaries/wages could be paid through ESIC or there should be as the assistance of 50% from the Government side towards the pay- outs.

• Inspections and physical audits by local bodies and regulatory institutions (such as pollution control board) with any non- compliance attracting fines and penalties should be withheld till the epidemic is under control.

• Constitution of a task force to assess the actual impact on the sectors worst affected by the lockdown and suggest long term policy measures.

References

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