The slew of measures announced by the Centre by way of stimulus package might be good in the medium to long term. However, in the short term, it may not help alleviate the immediate liquidity issues of companies.

According to Hemant Kanoria, Chairman, Srei Infrastructure Finance Ltd, while measures such as opening up of sectors like defence, civil aviation, coal and minerals would have medium to long-term benefit for the economy, there is an urgent and immediate need to bring in “administrative simplification” and improve the ease of doing business further. Such steps would go a long way in providing relief to businesses experiencing stress in the wake of the Covid-19 outbreak, he opined.

“The measures the government has announced are in the right direction, but these should be complemented with immediate liquidity support to businesses. This can be done through a few simple, yet effective, steps,” Kanoria told BusinessLine .

As per the measures announced by the government, MSMEs and NBFCs will be in a position to obtain loans guaranteed by the government. However, it would take at least 2-3 weeks for the schemes to come into action and actual disbursements may take a few more months. So, companies would continue to be starved of liquidity over the next few months, and some may not survive.

Meeting short-term liquidity needs

To meet the immediate or short-term requirement of the industry and to infuse cash or liquidity, the government should allow banks to do one-time restructuring of loans.

“The Reserve Bank of India should consider allowing one-time restructuring of loans based on the cash flow. Furthermore, the loan account should be classified as ‘standard’ so that no provisioning is needed for the same. This will stem the tide of NPLs and prevent businesses from tipping over into default,” he said.

The Central and State governments should also release all the pending dues to the contractors, companies, suppliers and vendors, which will result in an instant improvement in their cash flows. This apart, the government should also work towards resolving all the arbitration and litigation, which will inject fresh liquidity in the system.

“Banks have been asked to offer fresh loans in order to support businesses. But if companies do not have cash flows then, even if they are able to borrow, the money will be utilised towards repayment of outstanding amount and nothing much will be left in their hands to restart and revive their operations,” he pointed out.

Administrative simplification

The Finance Minister recently unveiled a slew of measures to spur investments, including relaxation of foreign direct investment (FDI) limit in defence, privatisation of airports and opening up of coal mining to the private sector, among others.

However, to encourage investors to invest in the current uncertain macroeconomic environment, the government needs to focus on improving the ease of doing business. There is a need to simplify procedures of getting approvals and regulations to conduct business.

“An administrative reform needs to be carried out. Simultaneously, it is also important that whatever commercial disputes are there, the judiciary addresses them within a time frame. This is essential to encourage investments in new projects. Otherwise, the announcements may not have the desired results,” he said.

Talking about the NBFC sector, he said there is a lot of uncertainty in the sector post the IL&FS episode. A majority of the NBFCs, barring a few in the consumer finance or microlending businesses, have been struggling.

“For NBFCs to be able to raise resources on an ongoing basis they should be allowed to access more avenues of funding, like public deposits. NBFCs support SMEs and MSMEs, and hence the recovery of this sector is key for revival of India’s economic growth,” he said.