The private sector should not cut jobs after the lockdown as reduced consumption and low confidence would only make matters worse for the Indian economy, according to Rekha Sethi, Director- General, All India Management Association.
"Besides pain for the employees, job and salary cuts would impede a quick recovery for businesses also," she told Moneycontrol in an interview.
Edited excerpts:Q. What is your take on the Rs 1.7 lakh crore relief package that finance minister Nirmala Sitharaman announced on March 26?
A. The relief package is a commendable effort by the government to help the people who have been hit the hardest by the national lockdown. It is only appropriate that a certain minimum money and food are assured to those whose livelihood has been affected. We are looking forward to more announcements from the Finance Minister who has promised a relief package for the industry, particularly the MSME sector.
Q. How do you view the disruptions triggered by the coronavirus pandemic?
A. The national lockdown was the only option in absence of a proven cure for the new virus and adequate healthcare capacity in the country. Businesses have been hit hard because of the lockdown, particularly those that involve onsite work and extended supply chains, such as construction and manufacturing. Transportation, retail and hospitality businesses are also severely hit. The cycle of revenues and payments has been interrupted and writing off a few weeks of business would strain everybody’s finances. If the pandemic is contained soon and the government ensures funds for tiding over the disruption, the economy could recover quickly.
However, at this stage, given the world situation, it is difficult to predict as we live in a globalised world and for perhaps the first time ever, we are all affected!!Track this blog for latest updates on coronavirus outbreak
Q. The lockdown’s effect is very similar to a mechanical hard stop on a device that was running. What happens when the government asks factories to shut down because people have to be confined at home? What happens when the government asks construction activity to stop overnight because areas with large gatherings have to be emptied out? What happens when restaurants and shops, other than those selling essentials, are ordered to shutter down because people’s physical proximity can add to the disease's spread? How are AIMA members dealing with the crisis?
A. Obviously – it is a major shock to the system!
Society and economy are built on contact and suspending all contact, trips the whole system. While technology allows some communication and commerce to be online, many sectors are halted by isolation. AIMA's members are adapting to the situation and minimizing the disruption to business. They are using technology to do business from home, to the extent possible. They are using mobile and cloud applications to communicate and collaborate with colleagues, customers and vendors. They are using the lockdown to reconfigure the way their organisations operate.
Q. This hard stop in the economy, unlike other recessions caused by systemic flaws such as the debt bubble of 2008, has been brought upon by the government because of a medical emergency. It is intentional and unavoidable. When do you expect the economy to bounce back?
A. The damage to the economy and its turnaround depend on how long the pandemic persists. At the moment, we are in an unknown territory and the most optimistic scenario is that the spread of the disease would start slowing down in a couple of months and a semblance of normality would return to the economy.
Q. Do you foresee systemic and cultural change in India's work and organisation culture after the coronavirus storm passes by? Do you think work from home could turn out be the new normal?
A. The makeshift arrangements for remote work are unlikely to become permanent. However, the situation is creating significant capacity for remote work which is unlikely to be thrown away once the pandemic is over. Also, the experience of remote work and collaboration will change mindsets. Employers would be less suspicious of employees working from home and employees would develop the skills and discipline to work from anywhere. The culture is likely to shift from employee presence to employee performance. It would certainly change organizations’ policies on employee tools and work, more or less.
Q. What are the key management lessons that Indian industry will take away from this crisis?
A. The most immediate management lesson from the global pandemic is that the supply chains have to be agile and production lines have to be flexible. The contagion and lockdowns have exposed the vulnerability of just-in-time supply chains and concentration of suppliers at a single location. For example, some of the Indian pharma companies (not all) and the auto sector had struggled to produce over the past couple of months because of their dependence on key raw materials and parts from a Covid-19 affected China. Now, Indian industry is likely to err on the side of caution and maintain at least critical levels of inventory. Another key management lesson is to make the production system adaptable to respond quickly to a crisis or a market change.
For example, alcohol and cosmetic companies in some countries have repurposed their factories to produce the much needed hand sanitisers and engineering and some auto companies have repurposed their assembly lines to make ventilators and other healthcare equipment. A longer terms outcome of this crisis would be a higher priority for automation.
Q. The government has appealed to the private sector not to retrench employees, even if they may suffer adversely because of the lockdown and restrictions. What is your view?
A. The government is right in asking the private sector to not retrench employees or cut salaries because of the lockdown. Besides causing suffering to the employees, job and salary cuts would impede a quick recovery for businesses also. A reduced consumption capacity and confidence will only worsen the damage to the economy. That said, the government has to help businesses pay workers for the period when there is no production or sales. The MSMEs cannot continue to pay workers without government support. They need immediate loans at minimal interest rates with deferred repayments.
The large enterprises also need support to pay suppliers and workers. Tax payments can be deferred by a few months. The RBI has done the right thing by lowering the benchmark interest rate by 75 basis points to ease the burden. It can further ensure that banks and businesses are well supplied with money. I am confident that the government will keep the economy healthy through this period so that it can rebound quickly once the pandemic is over.
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