The government needs to pump in money for public projects.

A broader monetary stimulus and policy rate cuts will help normalize the economic situation.

- Rajesh Nath, Managing Director, VDMA

How do you assess the steps initiated by the RBI and the central government so far to kick start the revival of the economy?

Finance minister Nirmala Sitharaman recently announced that the state governments have been directed to use the welfare fund for building and construction laborers, which has around Rs 31,000 crore, to help those who are facing economic disruption because of the lockdown. The home ministry has now allowed construction activity after April 20, bringing relief to a labour-intensive sector that was ailing under the national lockdown following the novel corona virus outbreak.           

The special Covid-19 economic task force announced by Prime Minister Narendra Modi would likely work on an economic package for the sectors most affected by the corona virus outbreak as also people working in the informal sectors. Led by the FM, this task force has to take drastic steps like relaxation in NPA norms, deferral of tax payments and announcement of income support to the people working in the unorganized sectors.

Governments approach on the economy revival package should be partly through fiscal expansion which is directed towards the bottom of the pyramid and enhanced credit to industry through banks. It will be important to simultaneously focus on industry and target increasing credit off take to at least 14 to 15% by the year end. RBI's intervention to increase liquidity which came just a day after FM's package was well targeted and was very much the need of the hour. However, there is an urgent need to infuse money to industry and this can be done through enhanced credit.      

What are the major challenges especially in terms of supply chain constraints, logistics, liquidity crisis, and acute labour shortage?

India is aspiring to become a $5 trillion economy and adequate infrastructure spending is critical. The National Infrastructure Pipeline released by the government has laid out a spend of Rs 102 trillion on projects over 2020-25. Of these, projects worth Rs 42.7 trillion (42%) are under implementation and worth Rs 32.7 trillion (32%) are in the conceptualization stage, while the rest are under development. During the fiscals 2020 to 2025, sectors such as energy (24%), roads (19%), urban (16%), and railways (13%) amount to around 70% of the projected capital expenditure in infrastructure in India. With the Centre and States expected to have an equal share of capital expenditure at 39% each to be undertaken in the infrastructure sector; the private sector accounts for 22%.          

Construction halt, revocation of toll collection, labour crunch and severe working capital pressure - these nightmares for any infrastructure company have now become a reality. The infrastructure sector is one of the worst-hit on account on Covid-19 and for some companies, this might even become an existential crisis.               

The more imminent challenge for the construction players remains working capital management. In the wake of Covid-19 pandemic, the focus of state and central governments has shifted to the welfare of citizens and hence infrastructure activity has taken a backseat. Infrastructure players are facing a severe liquidity crunch and as bills and dues from government are not being honoured on one hand, and on the other hand, companies are striving to maintain steady salary flows to contract labourers and employees. The same has resulted in a stark mismatch in fund inflow and outflow, putting pressure on balance sheets.      

After agriculture, the construction, infrastructure and real estate segments are the second-largest employment providers in the country. The infrastructure and construction sectors are highly responsible for propelling India's overall development and with intense the focus from government for initiating policies that would ensure time-bound creation of world-class infrastructure in the country. In 2018, India ranked 44th out of 167 countries in the World Bank's Logistics Performance Index 2018. Foreign Direct Investment received in the Construction Development sector from April 2000 to June 2019 stood at US$ 25.12 billion, according to the Department of Industrial Policy and Promotion.      

The lockdown has resulted in various infrastructure project sites staring at closure as it is mainly due to an effect on the labor movement due to the lockdown and also due to supply chain disruptions that may contract further as more states enforce Covid-19 lockdown. The fiscal situation in the construction sector for both the Centre and States is already worsening and continued funding of infrastructure capital expenditure will be a challenge in the near future. Additionally, all these problems will be further aggravated by the relief packages that are being rolled out by many states to support the loss of income caused by the lockdowns. This may further stress the government's ability to spend on the infrastructure over the next one or two years, further dampening the construction and the infrastructure segment.   

To what extent this will impact the export from Germany to India? 

International supply chain and goods logistics to India and within the country are severely restricted by the lockdown. Only the transport of critical goods is allowed. India has closed its borders for goods imports by rail and truck. Although goods are still landed by ship and air freight at the ports and airports, the deletion of the cargo on ships are taking significantly longer due to increased hygiene checks - in some cases the freight is being quarantined for 14 days.    

Almost half of Germany's export volume of EUR 12 billion to India is accounted for by machines and industrial equipment. A prolonged downturn in the Indian economy as a result of the corona pandemic will have a negative impact on fixed investment, the Reserve Bank of India (RBI) predicts. Key customer sectors of German machinery and equipment such as the automotive and supplier industries, metal processing, and the chemical and petrochemical industries are also likely to be affected. Demand for power generation, transmission, and distribution equipment could also suffer from the crisis.

What are the action plans for German Companies in India post Covid-19?

In order to evaluate the situation of Covid-19 holistically, VDMA India recently conducted a quick poll on the impact of Covid-19 on the business activities of our members. About two fifth of the respondents reported that they suffer from serious disruptions along the supply chain. Almost half spoke of noticeable disturbances. Nearly one-fifth reported a minimal risk of liquidity problems. Half were experiencing noticeable losses and one third serious losses. Of the companies not yet affected by the virus, majority expected problems within the next 3 months.    

During these unprecedented times, we need to stay connected and learn and unlearn how to do business. We have a sudden hidden bonus in the form of corona virus, which has created a deep awareness within people across the world about exposure and risk that they will face for being solely dependent on few countries. This is the time for India to analyse and work on where we are good at and where we have the raw materials and resources needed to quickly capture the market and regain its strength and glory. Risk management in a business has to be done on a more comprehensive basis and this is beyond just monetary risks.      

The Covid -19 can catalyse India to become a manufacturing hub especially for components. What is your take on this?

The corona virus outbreak has sent shivers down the spine of the global economy. It has disrupted the complex global supply chain network. The void created by disruption in global supplies can be filled by India, given its large workforce. 

China accounts for close to 30 per cent of global exports of electronics and electronic components. This significant dependence or, in some cases, over-dependence on China is hurting the global economy and companies are now on a lookout for alternative production hubs.              

For many companies, the shift from China began prior to the Covid-19 outbreak, thanks to the rising input costs and the US-China trade war. The virus just added fuel to the fire, and with the disruption caused by it likely to persist until mid-April, the manufacturing companies are staring at an imminent crisis. This has had a catalytic impact on companies looking to relocate their production hubs.           

The movement of companies away from China to other less-developed countries would trigger a new wave of industrialization. Consequently, the expansion of the manufacturing hub linked with global supply chains would increase not only productivity but also create large-scale employment. Given the scale of the supply chain operation in China, India could be China's doppelganger. India does not only have the potential to match China in terms of scale, but it is endowed with rich pool of unskilled labour, and a robust service sector.   

Every industry is different. Hence it is vital to understand the diverse need of these businesses and focus on specific sectors (such as pharma and automotive), which could yield greater and faster gains. These steps are eminently feasible, with first steps like the adoption of national logistics policy already in progress. India however, now has an opportunity to establish itself in the manufacturing space.

How do you foresee the short and midterm growth prospects? What are the silver linings?

Companies that navigate disruptions better often succeed because they invest in their core customer segments and anticipate their behaviors. In China, for example, while consumer demand is down, it has not disappeared—people have dramatically shifted toward online shopping for all types of goods, including food and produce delivery. Companies should invest in online as part of their push for omnichannel distribution; this includes ensuring the quality of goods sold online. Customers' changing preferences are not likely to go back to pre-outbreak norms.         

This lean period is increasingly used by the organizations to look beyond conventional sectors like automotive, power, oil and gas and focus on emerging sectors like medical, electronics, railways, water, environment and waste management, aerospace, defense.     

Supply chain reengineering including manufacturing, engineering centers and back offices can create new opportunities. Segments like textile, pharma, electronics and auto components (especially EV) have witnessed the maximum impact due to supply chain disruptions and shipments via sea being suspended. This will lead to strategic investments for localization / decentralization. The trend may go towards developing supply chain closer to avoid such disruptions in the future.         

The government announced that some construction activity will be allowed to resume. Construction of roads, irrigation projects, buildings and all kinds of industrial projects, including MSMEs, in rural areas, will be allowed after a review of the situation. This is a major development as it would help daily wage labourers get back to work sooner. Real estate experts said the resumption of construction activity from April 20 onwards, would send out a positive message to investors, occupiers and homebuyers. It would ensure healthy cash flows at least for projects that are close to completion and unlock further investment potential.   

What sort of Central / state government initiatives that the industry needs for a faster revival?

Since private investments may take time to resume, the government should focus on spending on infrastructure activity to generate employment and keep the economy afloat. It should pump in money for public projects such as roads, highways, metro and even affordable housing but implement social distancing norms along the way. That will hold the key.            

The construction and infrastructure industry employs more than 35 Mio people and contributes more than 10% to GDP of the country. Hence, the need of the hour is a real time collaboration between contractors, rental companies and OEMs for quick revival of the stalled projects and minimizing the liquidity crunch. This can be an accelerator for the growth of the economy after the disruptions suffered due to the lockdown.  

FM could announce measures to deal with the economic impact of Covid-19. The government has already made a broad assessment of the impact on select sectors such as financial services, tourism, hotels, trade and micro, small and medium enterprises (MSMEs) from interactions with ministerial colleagues and companies. Industry has sought a fiscal stimulus of up to 1% of the GDP of Rs 2 lakh crore, including direct cash transfers of up to Rs 5,000 for those out of the income tax bracket. Measures including relaxation of various tax compliances could be announced in a staggered manner. Government policymakers would need to implement a substantial targeted fiscal. A broader monetary stimulus and policy rate cuts will help normalize the economic situation.

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