The outbreak of Coronavirus disease 2019 (COVID-19), first identified in Wuhan, the capital of Hubei, China, in December 2019 and since then having spread globally, has been recognised as a pandemic by the World Health Organization (WHO) on 11 March 2020. India is widely affected by this pandemic. As on 29.04.2020, more than 31000 cases of Coronavirus have been confirmed in India with more than 1000 deaths.
Taking into consideration its severe intensity, seen in the context of India having the highest rate of density population in the world, the Governments, both at Union and State levels, commenced necessary actions on war footing to prevent the spread of this pandemic. It was all the more so when it is known that this deadly disease has no medicinal cure.
The effect of Corona virus is badly felt and noticed in the world's most developed countries like USA, Britain and Germany etc. Obviously, India was bound to be affected not only because of its domestic slowdown but also because of international recession. Learning the lessons from the developed countries like Spain and Italy, India put all its machinery and material into motion to curb and/or prevent the disease. What started as one day Janta Curfew on 22.03.2020 by the Prime Minister of India and lockdowns by some of the state governments, the entire country was declared to be under lockdown from the midnight of 24.03.2020, and the same continues to be so till now or atleast till 03.05.2020, unless extended.
Resultantly, everything and every activity, barring the activities relating to and concerning with the essential supplies came to a complete grinding halt. Though the improvement in the environment due to such a lockdown was a silver lining, however the toll on economy due to this lockdown is too early to be estimated.
While presenting the Finance Bill for the year 2020-21, the Union Government on 01.02.2020 had reasonably estimated India's nominal GDP growth rate (i.e., real growth + inflation) of 10 percent, however, the same now seems far from reality and certainty. The slowdown in demand, closure of production activities, fall in the global price of crude oil, ban on foreign trade, price decrease in the commodities like energy, metals and fertilizers, restrictions on the aviation industry as also on tourism, amongst others, are bound to exert downward pressure on the inflation, thus adversely affecting the economy chart. It is believed that India's aggressive lockdown could bring the country's growth down to 2.5 percent from 4.5 percent it had earlier estimated. However, as per a statement released by Chief India Economist of Goldman Sachs on 09.04.2020, the economic growth of India has been estimated at a low figure of 1.6% only.
Overall uncertainty and lack of demand, coupled with no investment seen in near future, the Indian stock markets crashed. A UN report estimated a trade impact of more than USD 350 million on India due to this outbreak, making India one of the top worst affected economies across the world. During the same time, Asian Development Bank estimated the loss to Indian economy due to this outbreak upto USD 29.9 billion. The worst crash of Indian stock market by 2352.6 points on one single day on 12.03.2020 is a cause of concern for all the Indian economists and economic advisors. However, after the declaration of complete lockdown, Sensex and Nifty gained a little, adding a value of about USD 66 billion to investors' wealth. The trend however reveals that the curve has been meandrical with absolute uncertainty.
Corona virus had its impact in the industry in general, which has seen, not only cutting the salaries but also laying off its employees. The hotels are vacant and airlines have closed their wings. The live events industry has also estimated a loss of more than Rs. 3000 crores.
The manufacturing, an important part of any economy, suffers from total lack of clarity. Lockdown has put great stress on the supply chains of essential commodities, and therefore, many of the Indian companies have focused on the production and supply of essential items only, thereby stopping all other production activities, thereby bringing down the production graph. Likewise, the other sectors like agriculture being the primary sector and the tertiary sector are also not free from its impact. There is hardly any manpower available for the agricultural purposes in different states. Lockdowns have manifestly made the farmers difficult to take their produce for sale to the markets. Informal sector of India, the backbone of its economy, will be hardest hit in view of economic activities coming to a total standstill. These lockdowns and restrictions on commercial activities and public gatherings are necessarily likely to strongly impact domestic growth. As estimated by Centre for Monitoring Indian Economy (CMIE) on 07.04.2020, the overall unemployment rate may have surged to 23 per cent, with urban unemployment standing at nearly 31 per cent. International Labour Organisation (ILO) has estimated about 40 crores workers of unorganised sectors to be unemployed.
The United Nations Conference on Trade and Development (UNCTAD), has suggested that India's trade impact due to the COVID-19 outbreak could be around USD 348 million. For India, the overall trade impact is estimated to be at 129 million dollars for the chemicals sector, textiles and apparel at 64 million dollars, the automotive sector at 34 million dollars, electrical machinery at 12 million dollars, leather products at 13 million dollars, metals and metal products at 27 million dollars and wood products and furniture at 15 million dollars. As per UNCTAD estimates, exports across global value chains could decrease by USD 50 billion during the year in case there is a 2% reduction in China's exports of intermediate inputs. What is also worrisome is the effect of all the circumstantial conditions on the Rupee value which is at its lower value of more than Rs. 76 per USD, exerting extra burden and pressure on the cost of import of commodities and services in India, and on the accumulated foreign reserves.
To minimise the effect in the economy caused by the COVID -19 outbreak, the Union Finance & Corporate Affairs Minister, on 24.03.2020, announced several important relief measures taken by the Government of India, especially on statutory and regulatory compliance matters related to several sectors. The Central Government, amongst others, announced much-needed relief measures in areas of Income Tax, GST, Customs & Central Excise, Corporate Affairs, Insolvency &Bankruptcy Code (IBC) Fisheries, Banking Sector and Commerce, intended to boost the economy.
Steps taken by the Indian Government:
The Central Government, amongst others, has taken the following decisions in these directions:
- Income Tax
- Extension of last date for income tax returns for financial year 2018-2019 from 31.03.2020 to 30.06.2020.
- Aadhaar-PAN linking date to be extended from 31.03.2020 to 30.06.2020.
- Due dates for issue of notice, intimation, notification, approval order, sanction order, filing of appeal, furnishing of return, statements, applications, reports, any other documents and time limit for completion of proceedings by the authority and any compliance by the taxpayer including investment in saving instruments or investments for roll over benefit of capital gains under Income Tax Act, Wealth Tax Act, Prohibition of Benami Property Transaction Act, Black Money Act, STT law, CTT Law, Equalization Levy law, Vivad Se Vishwas law where the time limit will be expiring between 20.03.2020 to 29.06.2020 shall be extended to 30.06.2020.
- For delayed payments of advanced tax, self-assessment tax, regular tax, TDS, TCS, equalization levy, STT, CTT made between 20.03.2020 and 30.06.2020, reduced interest rate at 9% instead of 12 %/18 % per annum (i.e. 0.75% per month instead of 1/1.5 percent per month) will be charged for this period. No late fee/penalty shall be charged for delay relating to this period.
- GST/Indirect Tax
- Those having aggregate annual turnover less than Rs. 5 Crore can file GSTR-3B due in March, April and May 2020 by the last week of June, 2020, without any interest, late fee, and penalty.
Others can file their returns due in March, April and May 2020 by last week of June 2020 but the same would attract reduced rate of interest @9 % per annum from 15 days after due date. However, no late fee and penalty shall be charged, if the compliance is made before 30.06.2020.
- Date for filing GST annual returns of financial year 2018-2019, which is due on 31.03.2020 has been extended till the last week of June 2020.
- Due date for issue of notice, notification, approval order, sanction order, filing of appeal, furnishing of return, statements, applications, reports, any other documents, time limit for any compliance under the GST laws where the time limit is expiring between 20.03.2020 to 29.06.2020 shall be extended to 30.06.2020.
- Payment date under Sabka Vishwas Scheme shall be extended to 30.06.2020. Further no interest shall be charged if the payment is made by 30.06.2020.
- Financial Services
- Relaxations have been provided for 3 months to the debit cardholders to withdraw cash for free from any other banks' ATM for 3 months, along with waiver of minimum balance fee, reduced bank charges for digital trade transactions for all trade finance consumers.
- Corporate Affairs
- No additional fees shall be charged for late filing during a moratorium period from 01.04.2020 to 30.09.2020, in respect of any document, return, statement etc., required to be filed in the MCA-21 Registry, irrespective of its due date.
- The mandatory requirement of holding meetings of the Board of the companies within prescribed interval provided in the Companies Act, 2013, (120 days) shall be extended by a period of 60 days till next two quarters i.e., till 30.09.2020.
- Applicability of Companies (Auditor's Report) Order, 2020 shall has been deferred by a year to financial year 2020-2021.
- As per Schedule 4 to the Companies Act, 2013, Independent Directors (IDs) are required to hold at least one meeting without the attendance of Non-independent directors and members of management. For the year 2019-20, even if the IDs of a company have not been able to hold even one meeting, the same shall not be viewed as a violation.
- Requirement to create a Deposit reserve of 20% of deposits maturing during the financial year 2020-21 before 30.04.2020 shall be allowed to be complied with till 30.06.2020.
- An additional time of 6 more months has been allowed to newly incorporated companies required to file a declaration for Commencement of Business within 6 months of incorporation.
- Non-compliance of minimum residency in India for a period of at least 182 days by at least one director of every company, under Section 149 of the Companies Act, shall not be treated as a violation.
- Due to the emerging financial distress faced by most companies on account of the large-scale economic distress caused by COVID 19, it has been decided to raise the threshold of default under section 4 of the IBC 2016 to Rs 1 crore from the existing threshold of Rs 1 lakh.
Relief for Poor
The Indian Government, on 27.03.2020, announced a Rs 1.7 lakh crore relief package aimed at providing a safety net for those hit the hardest by the Covid-19 lockdown, along with insurance cover for frontline medical personnel. About 800 million people are expected to get free cereals and cooking gas apart from cash through direct transfers for three months.
Such steps include:
- Ujjwala beneficiaries to get free cooking gas (LPG) cylinders in next three months.
- Collateral-free loan doubled to ?20 lakh to 63 lakh women self-help groups.
- Government will pay EPF contribution, both of employer and employee, for 3 months for all those establishments with less than 100 employees out of which 90% earn less than ?15,000 per month.
- Ex-gratia of Rs.1,000 shall be granted to 3 crore poor senior citizen, poor widows and poor disabled.
- Every MNREGA worker to get hike of Rs. 2,000.
- Health workers to get medical insurance cover of Rs. 50 lakhs.
On 09.04.2020, the Indian Government approved a COVID-19 package
worth Rs 15,000 crore to build on health infrastructure till March
2024, to be given to state governments and Union Territories to
develop COVID-19 hospitals, purchase of personal protective
equipment, setting up of laboratories, procurement of essential
medical supplies, medicines and consumables, and for strengthening
Steps taken by the Reserve Bank of India (RBI)
The RBI, on 27.03.2020, also announced a Regulatory package to mitigate the burden of debt servicing brought about by disruptions on account of COVID-19 pandemic and to ensure the continuity of viable businesses. Such steps, inter alia, include:
- All commercial banks (including regional rural banks, small finance banks and local area banks), co-operative banks, all-India Financial Institutions, and NBFCs (including housing finance companies) ("lending institutions") are permitted to grant a moratorium of three months on payment of all instalments falling due between 01.03.2020 and 31.05.2020. The repayment schedule for such loans as also the residual tenor, will be shifted across the board by three months after the moratorium period. Interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period.
- In respect of working capital facilities sanctioned in the form of cash credit/overdraft ("CC/OD"), lending institutions are permitted to defer the recovery of interest applied in respect of all such facilities during the period from 01.03.2020 upto 31.05.2020 ("deferment"). The accumulated accrued interest shall be recovered immediately after the completion of this period.
- In respect of working capital facilities sanctioned in the form of CC/OD to borrowers facing stress on account of the economic fallout of the pandemic, lending institutions may recalculate the 'drawing power' by reducing the margins and/or by reassessing the working capital cycle.
- Wherever the exposure of a lending institution to a borrower is Rs. 5 crore or above as on 01.03.2020, the bank shall develop an MIS on the reliefs provided to its borrowers which shall inter alia include borrower-wise and credit-facility wise information regarding the nature and amount of relief granted.
On 09.04.2020, the RBI has also published its Monetary Policy Report in which it has commented on different aspects of economy, be it be forecasting under uncertainty in a cyclical downturn, issues in supply management, media sentiments on economic growth, factors affecting rural demand, augmenting Quarterly Projection Model etc. which also do not seem very encouraging. Specifically, in relation to Impact of COVID-19 on Global Growth, the said Monetary Policy reports as under:
"In the initial weeks of February, most forecasts of global output loss due to COVID-19 were in terms of the outbreak being confined to China and being brought under control by March/June. It was, however, acknowledged that even in the limited scenario, the economic impact would be significant as China is a much larger player - both in terms of economic size and its role in global value chains - now than in 2003, the period of the SARS epidemic. Owing to extended lunar new year holidays as also government-imposed factory shutdowns and travel restrictions in a number of regions, China's manufacturing/services activity declined sharply in February. In the latter part of February, a rapid surge of infections and fatalities around the world began to surface, even as the spread of the virus in China began to plateau. Lockdowns were/have been imposed in most countries. Travel bans have created distress for airlines, tourism and hospitality industries. In the commodity and financial markets, crude oil prices have been on a downward spiral; with West Texas intermediate (WTI) crude prices crashing below USD 20 per barrel on March 30, 2020. Equity markets have suffered major losses, while gold, fixed income assets - mainly government debt, and the US dollar gained ground due to safe haven demand, but later corrected significantly on profit-booking and flight to cash. With the pandemic still looming, the estimates of the downward drag on global growth are being continuously revised. The consensus, however, is that there will be a recession in 2020."
On 27.04.2020, RBI decided to open a special liquidity facility for mutual funds of Rs.50,000 crores which shall be used by banks exclusively for meeting the liquidity requirements of mutual funds by extending loans, and undertaking outright purchase of and/or repos against the collateral of investment grade corporate bonds, commercial papers (CPs), debentures and certificates of Deposit (CDs) held by mutual funds.
In view of the demands of the general public regarding opening of certain activities as also considering the condition of COVID-19 in particular areas and in order to improve the deteriorating condition of the economy, the Central Government and/or State Governments have announced certain relaxations from time to time in order to restart the economic operations, particularly relating to healthcare, agriculture and allied, as also small mohalla shops dealing with books and electric fans, services by electricians, plumbers or water purifiers etc.
This Corona Virus pandemic may wreck the Indian economy. The level of GDP may further fall, more so when India is not immune to the global recession. Infact, it is believed that India is more vulnerable, since its economy has already been ailing and in a deep-seated slowdown for several quarters, much before the COVID-19 outbreak became known. The Prime Minister of India has already spoken of setting up an Economic Task Force to devise policy measures to tackle the economic challenges arising from COVID 19, as also on the stability of Indian economy. However, the concrete plans would have to be kept in place to support the economy and its recovery.
As the disruption from the virus progresses globally as well as within India, it is for us to forget, atleast for the time being, all talking only about economic recovery, and instead join hands whole heartedly to tackle the outcome of COVID-19.
Authors' views are personal only.
(Mr. Faisal Sherwani is an Advocate - on - Record at the Supreme Court of India and is currently a Partner in the Dispute Resolution Practice at L&L Partners Law Offices, New Delhi. Mr. Achal Gupta is an Advocate and a qualified Chartered Accountant. He is currently a Senior Associate in the Dispute Resolution Practice at L&L Partners Law Offices, New Delhi).
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