Coronavirus impact: Post lockdown ability to repay debt will be virtually zero; there will be need of cash, says Pronab Sen

Prime Minister Narendra Modi  on March 24 announced a 21-days lockdown period across India to prevent the spread of the coronavirus. That also means that the Indian economy becomes a patient of sorts because it has been recommended bed-rest for three more weeks.

Sharing his views on impact of all these developments on the economic growth Pronab Sen, former chief statistician said, “The immediate damage which is the week that has passed – where some damage has already happened – and the three weeks to come, if you total them up, I am getting a number of around Rs 10 lakh crore gross domestic product (GDP). We are looking at a situation where over the course of the year depending upon who you believe, we were looking at the growth for the full year of somewhere around Rs 10-12 lakh crore. That has gone. So for FY20, what we are looking at is a flat GDP,” he said.

“Looking at the future, much is going to depend on how quickly things can come back to normal. Much depends – at this point in time – about what is the kind of stock holding levels that we have in the system. So, I would imagine for about two months or so after all this quarantine is lifted, we may be able to plug along at a reasonable growth but after that everything is going to depend upon how quickly systems can be put back in place,” he added.

When asked what measures can be taken, he replied, “There are a number of things that one needs to think through. The first is the obvious one that people have talked about, which is a recognition that every enterprise is going to have a cash flow problem. So the ability to repay debt is going to be practically zero. So what should be done is that the clock on debt repayment, the EMIs, should be stopped right now. So you go to zero right now and you would be starting it when the government deems that normal activities can be resumed, not before that and keep it open-ended for the moment, don’t put a date on it. That is first step."

"The second step, which is equally important – what we are looking at is a situation where there is going to be enormous need for cash because what you are doing is kind of transactions one used cash for are the only transactions that are going to be left. How do you get that cash out there is the issue. Putting it into the banking system doesn’t help. So, one has to think about more direct means of cash transfer.”