moratorium: View: Ten steps while restarting the economic engine

By Ashu Suyash


Any calibrated approach to ‘restarting the economy’ should include the following 10 steps:

Relax the fiscal deficit target: Stretching the deficit target to release Rs 3-3.5 lakh crore of extra spending can help limit damage. This money can be used for well-directed income transfers and food support, facilitate business disruption loans by offering guarantee to commercial banks, soften the blow to services, and upgrade health infrastructure.

Liquidity support to small businesses: This needs to be done without increasing risk for lenders. Working capital stretch due to delayed payments even by big companies would become common. One way would be to provide specific funding lines at a very low cost (subsidised by GoI) for paying their vendors. Using technology, money can be remitted directly. This will improve the liquidity of smaller entities without exposing banks to additional risks.

Logistics and price support to farmers for rabi harvest: The food supply chain shouldn’t be broken and farmgate prices shouldn’t crash. This can be ensured by improving supply chain logistics and procurement. Agricultural produce market committees (APMCs) should be allowed to operate for pre-defined durations, so that farmers can sell their perishables.

Middle-class relief: A temporary reduction in personal tax rates for lowincome brackets is in order. If infections keep rising, rules must be changed to ensure universal access to paid sick leave, including for gig workers.

Extend moratorium on bank loans: Given the expectation of continued cash-flow volatility in various sectors, moratorium on loans may be extended by 90 days from June 1. The standstill on asset classification available for overdues as of March 1should also be extended by 90 days. RBI also needs to clarify the applicability of its moratorium on bank loans taken by NBFCs. NBFCs have to then extend the moratorium to their borrowers.

Turn the liquidity spigot towards debt markets: Ensure the Targeted Long-Term Repo Operations (TLTRO) window of Rs 1lakh crore flows into the larger corporate bond and commercial paper market as intended, and isn’t limited to AAA bonds. Also, utilisation of the Rs 50,000 crore earmarked for the secondary market can be monitored based on liquidity and redemption requirements of investors such as mutual funds. The flow of Rs 50,000 crore earmarked under TLTRO 2.0 for NBFCs should also be monitored.

Liquidity support to NBFCs: This will enhance market confidence in NBFCs and improve the resilience of the Indian financial system. Consultation with key stakeholders can be considered to finalise specific measures. Back corporates: One, extend the timeline or limited period deferral for payment of advance I-T and GST; two, provide special Covid-19 loans at concessional rates; three, quickly release tax refunds and clear dues beyond 30 days to government contractors and vendors; four, reasonably and uniformly interpret the force majeure clause by governments and their agencies.

Forbearance on capital market debt repayments: This will be important to release the liquidity pressure on corporates and NBFCs. Investor interest may be safeguarded in cases of such moratorium through an appropriate consent-seeking mechanism overseen by trustees.

Deferral of repayments: Defer scheduled pass-through certificate (PTC) repayments for a specific period, in line with the moratorium granted to instalment payments of underlying borrowers, as these instruments are structurally pass-through in nature. Also, provide a similar dispensation on scheduled repayments in pools purchased through direct assignment transactions, since the current disruption could lead to defaults in PTCs and pools purchased under the direct assignment route, endangering the securitisation market in India. Post-Covid, developed economies will move production back home at a faster pace. The overall labour-arbitrage pie in manufacturing will shrink, and competitive economies will gain a larger share. So, it is time to raise, if not change, our game.

The writer is MD-CEO, Crisil