The coronavirus pandemic has brought the entire world down to its knees. Businesses have been hit, lives have been lost and the world around us is probably never going to be the same again. As per a UN report, in India, with 90 percent of people working in the informal sector, 400 million people in the informal economy are at the risk of falling into further impoverishment. The International Labour Organization (ILO) predicts that COVID-19 can cause 195 million job losses globally.

Share Market Live

NSE

Over the last few days, we have constantly read news stories about layoffs, downsizing, salary cuts and shutdowns. Industries like hospitality, travel and tourism, agritech, automotive have been severely affected. There are entities who, (barring minimal deductions), have continued to pay the salaries without termination of employment.

On the other hand, many entities also seem to be taking this crisis as an excuse to close down businesses altogether to seek protection under the garb of the crisis. Hence, it is twice as imperative that the authorities do not succumb to pressure and are instead able to allocate resources towards those that truly deserve them. Dealing with the current crisis requires a multi-pronged approach that can yield results and prove to be an encouraging economic enabler.

Certain Promoter/Promoter Group friendly schemes need to be introduced by the Government to encourage them to infuse funds in their respective entities as and by way of unsecured debt specifically entailing the end-use to be payment of salaries with certain permissible minimal deductions. They must be permitted to infuse funds either by themselves or through a nominated third-party person on their behalf. There should not be any inquiry based on the arrangement of the funds. No declaration or an admission or a document of a similar nature shall be required from the Promoter/the Promoter Group for the specific infusion of funds under the proposed scheme.

The scheme-specific debt can be considered as an unsecured loan, which shall carry a fixed rate of interest with a moratorium of such a period so as to cover the expiry of the Covid-19 crisis. One of the key items that need to be introduced for such a scheme is tax benefits arising out of repayment of such Promoter/Promoter Group debt.

Ideally, the repayment of the debt together with the interest should not be taxed in the hands of the Promoter/Promoter Group. To clarify, this exemption of tax is only to be limited to the Covid-19 specific debt to be infused by the Promoter/the Promoter Group only towards continued payment of the salaries and retention of employees;

Much like the MSME sector, nationalized banks need to step up for other entities and units and assist in providing debt facilities. One of the ways to encourage is to have nationalized banks provide hassle-free debts to entities where the Promoter/the Promoter Group is willing to infuse funds under the specific scheme. The loans to be provided by the banks can equate to an amount that the Promoter/the Promoter Group is willing to infuse under the proposed scheme. It is imperative that the loans be provided with ease and the banks retain control of the end-use.

-Shweta Tewari is the Managing Partner of SGT Associates, Lawyers & Advocates. Malay Damania is Chartered Accountant. The views expressed are personal

First Published:May 9, 2020 12:02 PM IST