Industrial growth with support of Government and Banks……..during Corona times

Covid virus is no more a fear, but a reality already attacked GDP of our country. Time is warning us to work towards safeguarding our living and businesses from Corona after-effects. Creators of businesses have to fight corona as an economic war, within and outside of India for a longer duration. Industries, Trade and general public shall study corona impact individually and collectively and bring visionary changes in lifestyle and business strategies. At the same time Government and Banks shall work for long term outlook, considering macroeconomic factors and risks, during Corona times :

• World is expecting more de-globalisation; wherein European countries have already made it mandatory to have Government approval for all acquisition by foreign investors, as companies are available at cheaper acquisition prices and there is a fear that China may be eager to take over companies in Europe. Learning from its impact on emerging India, during April 2020, government of India has already announced for prior approval of government, for any direct foreign investment in India, by investors from countries direct neighboring to geographical boundaries of India. It’s an appreciable step taken by India to protect domestic valued companies from corona trade war impact.

• Central Government shall agree for increased funding to fiscal deficit with more support to state government thru overdraft facilities from central government. It will fuel public expenditures by state governments during corona times.

• India is at rating of BBB (lowest investment grade) and 10 years India bond yield 5.94%, wherein USA 10 year paper yield 0.77%. If our rating get further down-graded we will become a Junk Bond and this will crash the economy; hence it will be difficult to print more money.

• Interest rates will go further down, but Banks must pass it on to the borrowers. RBI lends only to the Banks in India and Banks are concerned more about betterment of their own Balance Sheets, than thinking on national and industrial interest. To safeguard of businesses post-covid times, RBI shall start buying Company Bonds.

• Indian economy is lucky to have lower Consumer credits of 13% of total GDP; wherein China has 41% and USA has 79%, this has kept consumers remain stand in difficult corona times.

• Public savings portion in India is just 17% (earlier it was 30%). Out of this, 10% is invested in Real Estate & Gold etc, hence Liquid instrument savings is only 7%. Indian mentality is getting inclined towards consumption economy, rather than saving economy; so there will be no stress in domestic consumption industries in India. It will protect our industries, after corona.

• Economy of Middle-East will be in big trouble, since crude-oil will not go back to 60-70 $ and will remain range bound around $40-45. Indian economy will have positive impacts with lower crude prices during corona times.

• It is expected that by year 2023, approx 39 crore population will come into the middle class earning. Presently only 2% of Indians are investing in Equity shares, with more corporate governance and increase in middle class population, ration of equity investors will increase. The same incremental ratio is expected in mutual fund investments, which is 60% in Mexico, 94% in USA and its only 12% in India. Rising middle class will lead to more investment in equity markets and affordable real estates in long term, to neutralize corona impact.

• If we talk about Indian Rupee, it is under pressure; still India is doing much better with comparison to other European and surrounding countries. India shall ensure that our bond rating shall not go to Junk. It’s evident from history that during our best years of 8% growth, rating of our bonds were not upgraded. So how our fiscal policy will be designed to save india from corona impacts.

In corona scenario, all individual and industries shall conserve cash and be ready for any need occurs for unforeseen circumstances or extended lockdown or longer gestation period for re-start of business. Keep your teams motivated to work in two timelines, what is to be done in current situation and what is target to be achieved in two years. But in any case, companies shall focus to increase equity capital and reduce loans to safeguard in interest payouts in corona times. Its better to get over capitalized, rather than getting disastrous over leveraged balance sheet. The author may be contacted for any strategic advice on case study basis.

Written by :

CA Yogesh Birla

Director
Birla WP Management
visit us at : www.YogeshBirlaCA.Blogspot.com