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Reopening Economy: Business Not As Usual

Author: Dasari Sreenivasa Rao/Wednesday, May 27, 2020/Categories: Exclusive

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Reopening Economy: Business Not As Usual

The return of normal business after the 63-day lockdown period, as on May 26, 2020, seems to be a turbulent issue owing to several factors. Indian business firms are facing a situation, which is already being faced by the US and other European nations, in which any coordinated use of inventory, supply-chain infrastructure, sharing sales data, etc., is not allowed under the present law. Further, GST exemption denial further dampened the confidence of Indian industry and business firms. The antitrust laws are posing obstacles for forging alliances of competitors in the same field. Particularly, pharmaceutical companies should limit their collaborations on R&D to anti-Covid-19 vaccines and should not, in its garb, collude on other drugs,” suggests CII in its latest report.

In its competition law compliance manual for corporates in the wake of Covid-19, the industry body noted that the Competition Commission of India (CCI) would monitor the business operations with an eye for any potential competition law infringement during this period.

For instance, in countries such as the UK and Australia, business rivals in same segment are coming together for using their resources to fix troubles in preventing shortages. Several supermarkets and grocery retailers are combining their resources to keep inventory and supply-chain mechanism in force. This is helping supermarket chains maintain stock equilibrium by balancing overstocked in one geographic area and under-stocked in other areas. Considering the changing business requirements in the reopening of economy, Australian Competition and Consumer Commission (ACCC) has accorded an interim permission for sharing sales and stock data to streamline supplies for retailers and supermarket chains.

Confederation of Indian Industry (CII) is asking companies to comply with competition law amid Covid-19 crisis as businesses and enterprises are facing a severe crisis amid the coronavirus pandemic. Although tough times may force companies to collaborate with their competitors, they must take decisions and operate as per the anti-trust law and the Competition Act of 2002.

CII in its latest report said that “the current Covid-19 crisis has created unprecedented challenges in India and across the world. This impact of Covid-19 on the functioning of the economy may prompt companies to collaborate with their competitors to tackle the uncertainty and hardship faced. However, companies must note that antitrust laws continue to apply and all business decisions undertaken by companies must not fall foul of the provisions of Competition Act- 2002.”

CII further observed that companies should carefully evaluate their business operations during the Covid-19 period, especially if their business operations might require close collaboration with competitors.

CII further stated in the report that “the concrete anti-trust risks surrounding any such collaboration remain difficult to assess. Given the absence of any guidance from the CCI, companies should tread with caution and consult their antitrust lawyers as and when required or while exploring any collaboration.”

CII said that companies should reach out to their external counsel to assess these risks and must avoid information exchanges through trade associations or any other platforms.

While entering into any form of collaboration, companies should take care that the collaborative efforts must be limited to products or services directly affected by the pandemic or the exigency measures.

CII has asked the companies to document all negotiations and internal discussions, while reviewing all collaboration arrangements beforehand by external legal counsel for any risks of contravening competition law principles and only pursuant to this review, should they be implemented.

No GST Waiver

The domestic corporate and business firms received a jolt as the Centre denied to exempt them from Goods and Services Tax (GST), while the Indian economy in the reopening mode. Indian industry has been urging the Centre for exemption of GST to help them fight Covid-19 disruptions.

The Union Finance Ministry has ruled out GST waiver or deference to businesses as part of the economic relief package to help them cope with the situation arising in the wake of Covid-19 pandemic and the resultant nationwide lockdown.

The Prime Minister Narendra Modi-led NDA government thinks that GST exemption will dent revenues. The Finance Ministry further stated that the GST exemption or deferral is not required as it would not give any benefit to industry.

India Inc expected GST exemption for six months in the mega relief package of Rs 20 lakh crore as part of the Atmanirbhar Bharat Abhiyan. Industry bodies argue that GST exemption would lead to revival of demand due to reduction in prices and hence benefit in the fight against Covid-19.

However, the Centre has exempted and given moratorium on payment of various taxes and debt as part of the package. A senior official on a condition of anonymity said that GST exemption would seriously jeopardise the industry’s interests and not result in any significant gains to consumers.

The official further said that if the Centre exempts businesses from GST, then it would lead to blocked input tax credit (ITC), resulting in increase in manufacturing cost and a higher price for consumers.

Najib Shah, former chairman, Central Board of Indirect Taxes and Customs (CBIC), said: “Hopefully, the Centre is not considering the demand. Exemption of GST on the final product is never a good idea. It distorts the value chain. It does not necessary lead to reduction in prices. In fact, it adversely impacts domestic industry.”

In the wake of coronavirus spread, the demand for GST exemption picked up. Several items including ventilators, personal protection equipment (PPE), Covid-19 test kits, sanitisers, etc., are under GST purview.

At present, the liability of the inputs be it 5% or 12% or 18% is more than offset when discharging the 5% or 12% GST liability on PPE or ventilator, the entire liability being 'paid' by the credit of taxes accumulated at the earlier stages of manufacture. If GST is exempted, this credit facility will be unavailable, leading to higher final price of the equipment.

CGS for NBFCs

The Partial Credit Guarantee Scheme (PCGS) for NBFCs is about to be operational as the Rs 3-lakh crore collateral-free credit line for MSMEs is now available. Department of Financial Service (DFS) tweeted that “PCGS scheme operational. Ensuring liquidity to MSMEs, the 100 per cent government guaranteed Rs 3-lakh crore credit line is expected to be operational very soon. Formalities are underway.”

The DFS department further said that PSBs would prioritise sanctions under emergency credit, reassessment of working capital and guaranteed credit line in tier-II cities in each state and Union Territory by June 1.

The government and the PSBs have aimed for fully digital loan documentation process of all the liquidity measures under the Rs 20 lakh crore economic package.

The DFS also said that the PSBs remain at the forefront in fight against the pandemic and 97 per cent bank branches and 80 per cent ATMs were operational throughout the lockdown.

About 92 per cent of MSMEs and corporate loan accounts with PSBs are eligible for the scheme under Covid-19-related emergency credit products and enhanced working capital.

The writer is a business journalist with 27 years of experience

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