Coronavirus lockdown | 70% Indian firms still have cash to pay employees for next 2 months: EY report

Around 70 percent of Indian companies that operate in the non-financial sector have enough cash to pay their employees for another two months despite the coronavirus-induced lockdown holding up economic activity, a study has found.

Consulting and audit firm Ernst & Young quoted data collated from analytics firm EMIS and said in a report, released on May 4, that average employee cost and interest payment constitutes only eight percent of the operating revenue of companies.

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As per a Live Mint report, the study was based on the analyses of fixed costs of 8,700 non-financial firms that have a total operating revenue of Rs 134 trillion.

A partner at one of India’s top legal and consultancy firm said one of the reasons Indian private companies have enough cash to pay is because of low employee cost.

Most companies have been in distress. Though the lockdown significantly reduced their operating revenues, they still have to bear costs such as employee salaries, rent, interest, etc.

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The financial health of several companies is alarming due to restrictions on economic activities, and if authorities do not help tackle the situation in time, it may result in a prolonged slowdown, the EY report stated.

It also said that the automobile industry – which employs 1.1 percent of India’s workforce for manufacturing and trading activities -- has been one of the worst-hit vis-à-vis revenues and jobs.

“Lower transportation use and bottlenecks in auto loans will also impact automobile sales. The sector is also affected by lower imports of automobile and parts and shutting down of key exports markets,” it said.

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