India has moved decisively to combat this most fearsome of all threats that we are likely to see in our lifetimes. We really have no choice. We don’t have the capacity in our health care system or the testing equipment at any scale, and definitely not the PPE and ventilators so compulsory for fighting this battle. We had to try and stop this virus in its tracks. We have moved faster than almost every other country, locking down the entire nation overnight. It was dramatic, urgent and far-reaching. Yet unquestionably, this produced an impact that we should have anticipated and planned for. With over 80 per cent of our workforce in the informal sector without the luxury of immediate severance and unemployment
benefits, many of them have no option but to head for the security of their villages and homes. Coupled with this, the impact on the entire MSME sector and related communities will be dramatic given the weak economy they were facing.
There is no question that the impact of this virus will create the greatest economic crisis since the Great Depression — and well beyond the financial crisis of 2008. We are probably already in a global recession — unemployment
in the US has shot up to 30 per cent — and economic growth has fallen by anywhere between 15 and 30 per cent across countries. Entire industries have been devastated — tourism, hospitality, airlines, exports, retailers, restaurants. We were already in weak economic position in India with slow growth, cash flows stretched, Non-performing Assets rising, and this double whammy comes at exactly the wrong time.
The Reserve Bank of India
has also acted fast — dropping interest rates, increasing liquidity, allowing banks to provide moratoriums on repayments. And the government has announced fiscal measures to help the poorer sections. But this is barely enough. We need to act with even faster scale and speed, and with much bigger and widespread impact. It has to be a philosophy of “whatever it takes”. There is no other choice. Incremental changes will not be adequate. We really don’t know how long this virus will surround us, till a cure is found. So our actions must be sustainable over a period of time because we could be facing repeated lockdowns in selected areas till the virus dies.
The MSME sector represents 29 per cent of the economy and employs 120 million workers — and it is currently facing into the eye of the storm. And the ripple effect of this will of course go across to NBFCs
and then onto banks and across the country. Supply chains are getting hit badly, loan repayments will slow down dramatically, and businesses will fail. We have to find ways to combat this.
Traditional mechanisms for managing such a crisis won’t work, so we have to throw the rule books out and think completely out of the box. Get someone like Nandan Nilekani to mastermind this like a war effort. Print money and get these funds as Direct Benefit Transfers to large swathes of our country, both consumers and MSMEs — specially all those who have already lost their jobs or their businesses are at high risk. Paltry increases won’t work — the transfers must have impact and provide some level of security — and we need to do this every month. Use technology to reach people and let them know what the government is doing and planning to do — via telecom companies, e-commerce entities with their large databases of consumers and SMEs, Provident Fund, business correspondents, DSA networks — to reach out to as many businesses as possible and give them access to funds. Find them either directly or via banks, NBFCs
and other financial institutions who can reach them very very quickly — they need drastic life support. As the RBI increases liquidity options, make sure this money is actually passed on by each and every bank and not selectively. Divert money from other parts of government spending into relieving the pain of this current scenario.
Very importantly, act with enormous speed. Get these funds to the people who need them in the next week. Ease the process for giving out loans so that these can be funded in a few days with minimal paperwork, but with all the necessary conditions. Use data available with the government and the private sector, specially employers and contractors, to reach out to these employees impacted by the shut down of so many businesses. Have working capital lines ready to be delivered to MSMEs through banks and NBFCs
as well as DSAs and Business Correspondents so that they can get back up on their feet whenever the lockdown
stops. Find adjacent businesses and people who are similarly impacted and include them in this process. Err on the side of speed and scale and not caution — it’s too late for that.
The moratorium on repayments is extremely welcome and necessary — but the rules should be simple and clear — it should apply to all financial instruments not just loans, and to all institutions that hold bonds and borrowings such as mutual funds. And it must be consistent across institutions. We are already seeing many borrowers asking for moratoriums even if they may have the resources to repay. But with this level of fear about the future, these requests will only grow and delays will happen. We cannot, therefore, have a situation where the lenders continue to expect repayments while borrowers believe they have been given the right to delay payments.
The NBFC sector with its wide distribution and reach, both directly and through their networks, can make a huge difference in getting these funds to the right people in all MSME sectors. The RBI can really help make this happen — by encouraging the banks to expand their lines a lot more — with credit enhancement schemes and guarantees — in multiples of today’s funding sources. Change the CRR requirements dramatically — get that money out into the economy — and with incentives and penalties to make sure the funds get to the right people. Start using analytics to help identify the key areas where the help is most required — there are many ways to use data and technology to do this — and we must ask for the private sector to also provide full support to build this capability.
“Cash is king” — never has this been more appropriate. Directing cash to the right people urgently, deferring payments, aiding liquidity are critical across all sectors and NBFCs play a vital role here. There will be leakage and waste and misuse — but we desperately need strong measures. We need businesses up and running and people back at work — and swift extraordinary actions to make this happen.
The author is chairman, Clix Capital