With the Covid-19 nationwide lockdown causing severe constraints and hardships on businesses and livelihoods, among other requests made to the citizenry, GoI has also asked businesses not to terminate the services of employees during this crisis. Most SMEs can comply with this request for, say, a month, but to expect them to sustain ‘unemployed employment’ beyond that would not only be unfair, but also practically impossible.
India can only overcome this financial crisis and dodge economic devastation if all four stakeholders —employer, employee or contract worker, government(s) and vendor —make some sacrifices and share the financial burden. For the duration of business lockdown, as well as the next two months (the time by which one could hope some ‘normalcy’ returning), the payables to the employees and contract workers could be dealt in the following manner:
* Recipients could forgo part of their incomes: For employees with CTC up to Rs 25,000 a month, a possible 20% cut; CTC of Rs 25,000-50,000, 25%; while those with CTC over Rs 50,000 a month need not be eligible for relief provided by GoI, and their salary-cut could be mutually agreed with the employer. Other recipients, for instance, a proprietor renting out accommodation, could take a 1/3rd cut.
*Contribution by government: Half of the balance payable after a salary/rent reduction could be reimbursed by the government as credit against statutory dues payable by the employer, e.g., goods and services tax (GST), income-tax (I-T), professional tax, provident fund (PF), employees’ state insurance (ESI). If that does not cover the total amount, the amount could be provided in cash to the employer.
* Employer: Employers could pay net payable (after salary reduction) to employees and other recipients. Effectively, the employer ends up paying a third to 40% of the amounts normally payable to such recipients. At end of two months after the lifting of lockdown, employers could resume normal payments without any deduction.
Vendor payments: For employers whose revenues have either stopped or have reduced significantly — say, by more than 50% of the average last six months’ revenue — due to lockdown, the payables to their vendors could be made in four equal monthly instalments of all outstanding amounts as on the date of lockdown (till March 25), and new payables post-date of lockdown (from March 25) till two months after the lockdown is lifted.
Unless government makes all concerned share the burden, no advisory or directive will practically work. Without doubt, this government subsidy will result in an increase in fiscal deficit. However, in extraordinary times like these, there is no alternative but for government — both central and states — to focus on the survival of the citizenry and put fiscal deficit concerns on the backburner. Also, if the government is ready to bear the same amount of burden it expects businesses to bear — and is seen to bear it — its appeal to businesses to fight this battle together will bear much more credibility.
(The writer is chairman, Bharti Infratel)