Small businesses in India’s industrial enclaves are confronted with the harsh new reality of the post-Soviet world, counting their losses from the pandemic and the resulting blockade. There’s not enough money. The supply lines are worn out. Export markets are closed. And the workers are gone.
How do you create a company without problems? They are all gone, said Mayank Ajay Gupta, owner of Meerut’s Partapur, a once lively industrial enclave of nearly 15,000 small and large units near Delhi.
Micro, small and medium-sized enterprises (MSMEs) are generally dependent on monthly operations to generate income and profits, with low reserves and a low ageing population. It is not yet known when economic activity will be able to return to pre-crisis levels, as the rules of social distance mean that only 33% of the working population can work per unit at any given time.
The blockade, which started at midnight on the 24th and 25th. The march imposed on the country led to a catastrophic exodus of millions of workers and day laborers from the cities to their homes in state villages like Uttar Pradesh, Bihar, Jharkhand, Odisha and West Bengal, which have traditionally been a source of labour for factories like Gupta.
India’s fifth largest economy had already slowed down before the pandemic began, due to a decline in household consumption and private sector investment. Despite the fact that economic growth came to a standstill for only a week, it fell to 3.1% in the March quarter, as if from the March 30 economic forecast. Official data published in May.
To stimulate growth, Prime Minister Narendra Maudie announced on 12 December that the European Union would continue to invest in the development of the economy. On 1 May, the Government announced on national television a Rs. 20 debt relief and stimulus package, which included fiscal and monetary policy measures taken in the past by the Government and the Reserve Bank of India. It has also formulated a new economic position based on its own strength. Despite the extensive credit programmes announced by Finance Minister Nirmala Sitaraman, the economy is preparing for the first possible recession in a generation.
The economy is unstable. According to the data provided by the Auditor General, the budget deficit or difference between government revenue and expenditure at the end of the financial year is 4.59% of gross domestic product (GDP), which is above the budgetary target of 3.8%. The income deficit was 3.27% of GDP. This means that the government has little room for manoeuvre to finance sanitation facilities.
The 13th. In May, Sitharaman announced a series of measures for MMEs, the backbone of India’s manufacturing industry, which accounts for 29% of India’s GDP and employs more than 120 million people.
Industry is just as concerned about capital as it is about labour. These reforms (announced by the government) are more of a medium-term nature, so we do not expect them to have a direct impact on the resumption of growth, economists Prachi Mishra and Andrew Tilton of Goldman Sachs wrote in their research report of 17 January 2009. Mei.
The growth problems in India started long before Covid-19. In September 2018, Infrastructure Leasing and Financial Services Ltd, a major creditor of all types of companies, including MSMEs, defaulted on its debts, causing a liquidity crisis in the country’s financial services market. The cost of borrowing has risen sharply. Private demand has also gradually collapsed.
Economist Hetal Gandhi of Crisil Research said that people’s investments in real estate projects are deadlocked, leading to a loss of the ability to spend money on other assets. It cited data from the real estate regulator to show that not only new projects, but also the rate of completion of existing projects had slowed down.
The economic context of the closure was gloomy. According to Krisil, the average total income from agriculture, including a farm worker’s salary, rose by 0 percent to Rs in 2018. 65,000, compared to an increase of 8 percent in 2017.
The growth in the income of the urban population from the formal sector, reflected in the labour costs of 750 listed companies, which averaged 10-12%, fell to 5% in the last quarter of 2018-19. The growth of the income of the urban population from the formal sector declined in the course of the 1920s and 1920s. Looking at data on employee expenses for the six quarters prior to the third quarter of fiscal year 19, I can see that the growth rate per employee was 10-12%, which was 5% in the last quarter, Gandhi said. She said the income crisis was clear.
No one expects a V-shaped recovery, a scenario in which a decline is quickly reversed if growth recovers quickly. Most people expect a U-shaped or L-shaped trajectory: The first represents a long resistance and the second a stable minimum.
Forecasts should not be meaningless. In the Wagle industrial area of Thane, where 900 production units are located, none of them have been able to start up operations because of the liquidity and labour crisis, says Sandeep Parich of the Chamber’s association of small businesses.
We don’t need any new loans. We need lower taxes on goods and services for long-term sustainability, says Ajay Rathi of Rathi Fastners, a medium-sized company.
According to a report published by Goldman Sachs in the last week of May, India’s economy is expected to contract 5% during the year to March. The International Monetary Fund has lowered its economic growth forecast for India in 2010-21 from 5.8% in January to 1.9%. According to Barclays, growth was 0%.
The blockade caused an enormous supply shock, i.e. an unexpected change in the supply of goods or services. According to calculations by Pronab Sen, the former chief statistician, the lock-in effect, which affected 50-55% of the economy, may have resulted in weekly losses of about 2 Lah-crore rupees or 1% of GDP at 2019-2020 prices.
While the land is on the 24th. When factories, shops and construction sites closed in March, unemployed migrant workers became embroiled in a struggle for survival. Thousands of people began walking hundreds of miles in difficult conditions to return home, hungry, thirsty and tired, causing an unprecedented crisis.
Aijaz Hassan, owner of a machine that makes scissors at the famous Kainchi market in Meerut, said he suffered because the government did not let the RSI open in April, when the blockade first fell. According to him, this would help prevent a massive return migration that has not taken place since India’s independence. It would prevent workers from fleeing the city. We could have hired him, he says.
Not surprisingly, the country’s unemployment rate quickly reached historic highs and cost more than 114 million jobs, mostly in small businesses and per day, according to the Indian Economic Monitoring Centre (IMEC), released in May.
The unemployment rate reached a record high in the week before the third quarter. 27.1% in May – the highest level in history, suggesting bloodshed in labour markets. On the positive side, the emerging economy is starting to create new jobs. The latest data from the Observatory of the Indian Economy show that the unemployment rate in cities has fallen sharply, as in the week before the 7th World Economic Forum. 17.08% in June, compared to a peak of 25.14% in the week of 31 December. Mei.
The fifth. On 20 June, the Reserve Bank of India (RBI) released the minutes of the meeting of the Monetary Policy Committee from 20 to 22 June. May, in which the consequences of the closure were discussed. Dark milestones await them. India’s central bank said the country’s economy could shrink for the first time in 40 years. RBI Deputy Governor Michael Patra said the damage caused by the blockade was so great that it would take years for the country’s productive potential or GDP to recover.
Committee member Yanak Raj said that private consumption, which affects everything we buy, can be significantly slowed down. He also added that a collapse in domestic demand would significantly reduce inflation from its current level. Low inflation is necessary to maintain economic activity.
Fairer prices could make agriculture, the only sector of the Indian economy that has largely escaped the bite of the embargo, shine.
The government has been able to give the agricultural sector easy access to all the inputs needed for the next harvest season or summer sowing, says KR Mani, a professor at Tamil Nadu Agricultural University. These include loans, seeds and fertilizers. The government has also opened up markets for middle-aged people, a decision that has required large amounts of money from the farmers.
The agricultural sector will grow by at least 3% in the years 2020-21 and, according to the assessment of the National Analysis Centre of Niti Ayoga in April, will contribute to the overall growth.
Recent figures show that the country’s agricultural sector weathered the crisis well, with more land in the summer compared to the previous year, more sales of fertilizers and seeds and better prices, which RBI Governor Shaktikanta Das described as a glimmer of hope. However, the fall in overall demand and prices will put farmers in a difficult position.
What worries economists most is that the number of Covid 19 cases in India continues to rise. The increase in economic activity will be at the expense of the increased risk of higher infection rates…, said Sonal Varma, economist at Nomura Securities Ltd. Organizing an economic recovery without restoring health will remain a challenge, she added.