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-Mr. Saksham Goyal
With the emergence of the Coronavirus pandemic, the world economy which was already showing signs of sluggishness now appears to be on the verge of severe contraction. The virus has had a catastrophic effect on the economies around the world and with uncertainty over its future, the virus has brought new challenges for businesses.
According to the estimates of the United Nations, the world economy could contract by 1%. However, it has also stated that the world economy could shrink further.
The International Monetary Fund in April 2020 also projected the global growth to fall to -3%. However, we still do not know the full scale of destruction which the virus is capable of. Measures like social distancing are interlocutory – it only aims to reduce the rate at which the Covid-19 is spreading. However, it is virtually impossible without a vaccine to eliminate the virus from existence.
Moreover, presuming the measure of lockdown adopted by several governments brings down the growth rate of Covid-19 and the world resumes its economic activity, the world would still be living under the constant threat of the return of the Covid-19.
The appropriate economic stimulus by the governments around the globe and speedy development of a vaccine to combat the virus is the need of the hour. Former will help the businesses from the clutches of bankruptcy and will also help in improving the cash flow ratio whereas the later will help in eliminating the virus from existence and it will also help in creating atmosphere beneficial to the business.
In India, the Reserve Bank of India announced a mortarium on term loan to defer the payment of instalments by three months. The Central Bank in March, 2020 cut repo rate by 75 basis and in April, 2020 cut reverse repo rate by 25 basis points. This move will increase the availability of funds with the banks and ensure that the banks will lend more money to individuals, companies, MSMEs, farmers and the poor – repo rate is the rate at which the central bank of a country lends money to commercial bank in case of any shortfall of funds. – reverse repo rate is the rate at which the central bank of a country borrows money from commercial banks.
Among other things, the Reserve Bank of India also announced the easing of assets classification norms to ensure that bonafide cases of default during the outbreak of the pandemic do not get classified as a non-performing asset.
However, the above-enunciated measures are not sufficient to mitigate the loss which the pandemic has caused and in the absence of a full-strength working judiciary, the conflicts between individuals and companies are rising at a phenomenal rate. The courts are only hearing the matters of grave urgency like stay and bails. This means that many of the economic conflicts which arise due to the Coronavirus pandemic will be taken up by the courts only after the resumption of normal activities of the judiciary.
Economic activity in the country has stalled and in many cases and therefore neither individuals nor businesses are capable of paying off their current liabilities. Almost everyone is trying to invoke ‘force majeure’ to prevent paying their liabilities which has made things even worse for the economy.
Therefore, in the wake of unprecedented times like these, the Government of India and Judiciary must not hold back any additional relief package and should immediately roll them out at par.
