What do Firms Want?

01 Dec 2021

Opinion: Bornali Bhandari KS Urs Ajaya K Sahu & Samarth Gupta 

The NCAER Business Expectations Survey (BES) closely tracked firms throughout the pandemic period on a quarterly basis trying to understand the challenges that they faced how they adapted and whether they were able to leverage government benefits targeted at them.

After the second COVID-19 wave business sentiments recovered in 2021–22:Q2 as compared to those prevailing in 2021–22:Q1. The NCAER Business Confidence Index (BCI) increased by 90 per cent on a quarter-on-quarter basis and by 80 per cent on a year-on-year basis. Furthermore BCI is now higher than the pre-pandemic level in 2019–20:Q2 signalling recovery from the worst of second COVID-19 wave. 

The NCAER Business Expectations Survey (BES) closely tracked firms throughout the pandemic period on a quarterly basis trying to understand the challenges that they faced how they adapted and whether they were able to leverage government benefits targeted at them. In this article we focus on two things – (i) government pandemic measures & their relevance for firms and (ii) firms wish list from Budget 2022.

Availing benefits from policy measures

The government had announced several measures for firms including subsidised rate or special credit facilities greater repayment flexibility or extended loan tenures postponement of filing taxes and reduction in penalty on overdue Goods & Services Tax filing. In Round 118 of the NCAER BES we had asked firms to evaluate to rate the perceived benefits of key policies on a scale of 1 to 5 with 1 being least beneficial and 5 being most beneficial. Policies were found to have significant benefit when firms rated them 4 or 5.

  1. Postponement of filing taxes: 52.2% of firms found this policy to be of significant benefit. This number was 54.5% for small firms i.e. firms with annual turnover ≤Rs 100 crore and 48.7% for large firms i.e. firms with annual turnover > Rs 100 crore.

  2. Reduction in penalty of overdue GST filing: 50.5% of firms found this to be significantly beneficial.

  3. Moratorium on loans:  43% firms perceived this policy as significantly beneficial.

  4. Credit Policies: Several rounds of the NCAER BES show that credit uptake worsened between June 2020 and March 2021 with 75% of firms responding that they were not even aware of the Emergency Credit Line Guarantee Scheme (ECLGS). There has been improvement in share of firms responding that they had ‘taken credit in the last three months’ in June and September 2021 (Improving The Credit Scenario In India). Despite the improvement 70% of firms had responded that they had not ‘taken credit in the last three months’ in September 2021 and only 19% of firms were planning to take credit in the next three months.    Among the firms that took loan during the last three months 48% responded that they utilised some government scheme announced post-Covid to take credit. Awareness about schemes like ECLGS had also improved after December 2020.  
  5. Factorisation: A common challenge that has been reported by firms is about pending dues from their buyers.  In September 2021 54.2% of firms had responded that they had pending dues from private sectors buyers. To address this the government amended the Factoring Regulation Act 2011 in 2020 to widen the scope of entities which can engage in factoring business. NCAER BES in September 2021 asked firms about their awareness of this policy and if they would sell their ‘invoices’ to a factoring firm at a discount in exchange for quicker funds. Our survey suggests that nearly two-third firms were aware of the Factoring Regulation Act with corresponding figures for small and large firms being 57% and 73% respectively. Despite high awareness of the new laws most firms were reluctant to avail benefits from this funding source. Specifically 57% firms were not willing to sell their ‘invoices’ to a factoring firm at a discount. The main reason given by firms was they had no such margin to sell their business at a discount. 

Wish list from the government for Budget 2022

As the pandemic abates and economic conditions improves policy set may require changes to support firms.  Among the various policy options 83% firms responded that they wanted the GST process simplified. Thus easing regulatory burden or business rules was the top priority of firms. This was followed by some measure of financial support. Around 63.5% of firms wanted wage support and 54% firms wanted the government to provide financial grants to sail through the crisis.  Interestingly only 48% firms require tax holidays while 32% firms responded that they wanted favourable custom duties/import tariffs. 

In sum the relevance of the policies announced by the Government in the immediate aftermath of the pandemic was varied.  Only two policies namely ‘postponement of filing taxes’ and ‘reduction/waiver of late payment penalties’ were perceived to be significantly beneficial by slightly more than 50% of firms.     Further easy credit availability either through credit guarantee scheme or market innovation of factoring did not appear to be of significant interest to firms. Thus cost reducing measures appeared to have benefited the firms more than capital infusion policies. 

Juxtaposing the perception of benefits against wish list in the future we find that capital infusion or monetary support were not the most preferred options. Instead easing regulatory burden by simplifying GST procedures may gain better yields. This not only improves ease of doing business but also improves further tax collections.    

Bornali Bhandari is Senior Fellow KS Urs Associate Fellow and Ajaya K Sahu is Senior Research Analyst at NCAER.  Samarth Gupta is a former Associate Fellow at NCAER.  Views are personal.

 

Published in: QRIUS, 01 Dec 2021