COVID-19 | Why India must offer more financial stimulus and not just put employers in debt

Gurbaksh Singh Chahal

In the United States, if you have a business that has less than 500 employees, or are an independent contractor, you have a lifeline. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the largest financial assistance bill ever, includes provisions to help small businesses.

All you have to do is go to your bank and ask for CARES relief. Within 48 hours, you’ll be given a 90-day loan to cover payroll and fixed expenses like rent. So long as you don’t let go of any staff, at the end of 90 days, your loan will be forgiven. Think of this as free money to help you stay afloat and retain jobs.

In the US, every business should take advantage of this, and other countries, such as India, should copy this model for their economies.

The current Reserve Bank of India (RBI) scheme is more like a moratorium, not a relief. The current stimulus offers liquidity to the markets for the banks to generate more loans. However, there is no guarantee that you would even get a loan or a fast track loan. The scheme also states that you should still pay your EMIs and credit card dues if you can. If the country is shut, then why doesn't the government stop collecting EMIs?

Putting businesses in further debt will not allow employers to survive. The government must take an aggressive measure to save the economy.

Why forgiving a loan works

If you are a small business and are about to go under, why would you take out another loan to pay employees, overhead, and fixed costs when you are uncertain of when your business will recover? Why would any business take this risk of going further into debt?

Access to capital is the first problem, but the structure of capital is even more important.

The only path forward is for the government to give conditional loans that are forgiven over a period of time in order to put stability back in people’s livelihood. The countries that don’t do this will end up taking decades to recover.

Over the weekend, there have been a lot of speeches where leaders across Asia, especially India and Hong Kong, have asked employers not to lay off employees — and even give more to their employees. Politicians need to stop passing the baton to employers.

Most small businesses aren’t cash rich, and are having a tough time making cash flow work. How long do you expect employers to pay employees when revenue has essentially frozen?

World leaders all need to adopt a similar approach like the US’ CARES Act and use it to stop their economics from a free fall.

Short-term measures

April is going to be a tough one. The COVID-19 pandemic is expected to spread further and also incite global layoffs.

I would encourage every CEO and its executives to reduce their salary to zero, in the hope that it would help retain a few more jobs to get through April.

This is a time our governments need to stand up for its citizens. They must realise it and not waste this opportunity, because no one is immune to this viral and financial infection.

Gurbaksh Singh Chahal is a Hong Kong-based entrepreneur, and chairman and CEO of RedLotus. Views are personal.