At the same time, non-banking financial companies went into deeper stress as people stopped borrowing and there was a general fear about lending money to these firms. When the skeletons came out of the cupboards, the realisation dawned that many of these were riding tigers. For example, the monthly interest liability of a non-banking financial company was Rs 1,500 crore on a loan book of around Rs 1 lakh crore. This NBFC was clearly raising money at an unaffordable rate during a falling interest rate regime.
Then, Covid-19 happened. And the lockdown began. Now, after 50 days of the lockdown, a grand stimulus package has been announced. But it again focusses mostly on the supply side, and reforms that will give results in months or years later.
Meanwhile, demand has suffered badly. Most companies, barring an odd Asian Paints, have announced salary or job cuts… some of them severe ones. Even the central and state governments have cut salaries so one cannot blame the private sector only. So, in terms of income, an upper middle class family will most likely going to be downgraded to middle class, middle class to lower middle class and so on.
So car companies can make cars, builders may build houses, banks may lower interest rates, malls may open and there could be grand discounts at the best hotels, but few would be able to or interested in spending on such luxuries. The ones who do aren’t dependent on salaries but dividend incomes. Instead, there will be downtrading. A Pears soap user may go for Lux. And a Lux user may seek comfort in Lifebuoy.
Managing such times is an ‘out of syllabus exercise’ for any government. But this could be a good time for free lunches and tax holidays. A one-year tax income holiday for everyone or up to a certain salary level is likely to ensure that people don’t down trade or defer basic expenses. Yes, a car or home buying may not happen immediately, but even being able to maintain the existing lifestyle will help growth and India Inc.
Few would want a loan currently, but most need a free lunch. Since the nineties, successive governments have sold the ‘middle-class spending power’ dream to attract investments from global companies. It’s time to protect it.
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard.