Covid-19: How Long Can India Inc. Hold Its Breath?
A watch held over a deserted Marine Drive, in Mumbai, on April 6, 2020. (Photographer: Kunal Patil/PTI)

Covid-19: How Long Can India Inc. Hold Its Breath?


India has been in a state of nationwide lockdown for three weeks, now extended till May 3. As the days go by, the economic consequences from the continued lockdown are beginning to stare at us.

Firms will find it increasingly difficult to sustain even the minimal operations required to keep themselves alive. We ask, how many days of liquidity cover is there, in the large non-financial firms, to be able to meet a certain threshold of minimum expenses in the absence of any revenue?

Measuring Firms’ Ability To Sustain Operations

Even when a firm is not operating, it needs to undertake some expenses. It needs to pay its staff, at least those that it has not yet laid off, it needs to pay interest costs on debt, rentals, utility costs, insurance premiums and auditor fees among others.

We assume that firms will not lay off staff and hence wage expenditure remains the same as before the lockdown, regular maintenance expenditure will be 60 percent of normal, and they will continue paying for expenses such as rentals, insurance premiums, and auditors fees. But how will they pay for these expenses?

In normal times, a firm earns revenue from the sale of goods and services. It has receivables, or it borrows working capital from banks. In a lockdown, these sources of capital are expected to dry. While it is likely that revenues of firms will not go to zero and will depend on the sector the firm is in, we assume that there is a 100 percent sales shock for all non-financial firms. Our assumption gives us a worst-case picture of the hurdle that cash holdings will have to overcome.

If firms knew that a lockdown was coming, they may have made efforts to accelerate the collection of their receivables. But since the lockdown was announced and put in force with no notice, we assume that firms were not able to engage in this strategy.

The next source of capital would ideally be banks. However, we know that Indian firms are generally credit-constrained. We also know that banks and NBFCs were already under stress before the lockdown. Their overall lending, and especially their lending to firms had stagnated, with negative consequences for liquidity in the credit markets. It is, therefore, reasonable to assume that firms do not have recourse to loans to carry themselves across the lockdown shock.

Firms do have some marketable securities on their books. But market conditions are also affected by the lockdown; the price and impact costs of marketable securities have deteriorated. We, therefore, assume a 50 percent realisation of the value of marketable securities in the book.

We use data for all non-financial firms from the CMIE ProwessDX database (updated in December 2019), for three years: 2016-17, 2017-18 and 2018-19. We have a sample of 16,300 firms. Since we do not precisely know the state of the firm on the date of the lockdown, we use an average of two or three years seen in the data. The recent three years have been a period of stability of the nominal values, i.e. low growth, thus making these simple averages more useful.

Our calculations, based on these assumptions, lead us to two measures: liquid assets with a firm and minimum costs that a firm will have to incur.

Minimum costs are of two kinds: those including interest expenses (MC1) and those excluding interest expenses (MC2).

The ratio of liquid assets to minimum costs adjusted for the days in a year, gives us the number of days a firm can survive.

What Do We See?

In the chart below, we plot the fraction of firms where the liquid assets are not able to pay for a given number of days of zero revenue, going by two definitions of minimum cost (i.e. including or excluding interest payments).

  • 2.7 percent of the firms do not have liquid assets to meet MC1 for even one day.
  • 29.8 percent, or 4,870 firms, have 30 days or less of liquidity cover for MC1.
  • 54.8 percent, or 8,927 firms, have 90 days or less of liquidity cover for MC1.

These firms will be the ones most affected by the first phase of the lockdown and the extension.

If we put interest expenses aside, thus assuming that all firms can obtain an interest payment moratorium, the results change slightly.

  • Now, 2.3 percent of firms do not have liquid assets to meet MC2 even for one day.
  • Now, 23.4 percent or 3,799 firms have 30 days or less of liquidity cover for MC2.
  • 47.5 percent or 7,674 firms have 90 days or less of liquidity cover for MC2.
Covid-19: How Long Can India Inc. Hold Its Breath?

Our sample of 16,300 firms has an asset base of around Rs 164 lakh crore and annual sales of Rs 107 lakh crore.

The 8,927 firms which we identify as vulnerable, with three months or less of liquid assets for minimum costs including interest expenses, account for nearly 60 percent of the overall sales and total assets.
  • Around 19 percent of these are large firms with assets worth over Rs 500 crore.
  • 27 percent are medium-sized firms with assets of Rs 100-500 crore.
  • And 53 percent are small firms with assets worth less than Rs 100 crore.

While the large firms may be able to solve their liquidity challenges by accessing credit, the medium- and small-sized firms will find it harder, given the weaknesses of the financial system.


Our assumptions rest on the extreme event of a 100 percent sales shock. It is quite likely that firms will have some revenues, or firms will be able to cut some costs, such as wage expenditures. However, the extreme assumptions help outline how bad it can get. More than half of the Indian corporate non-financial balance sheet is unable to hold its breath for 90 days, under these assumptions. About a quarter of the firms will not be able to handle a 30-day interruption of revenues.

Also read: Covid-19: Rescuing The MSME Sector

Renuka Sane is Associate Professor at the National Institute of Public Finance and Policy. Anjali Sharma is Lead Research Consultant at the Finance Research Group.

The views expressed here are those of the authors and do not necessarily represent the views of Bloomberg Quint or its editorial team.

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