COVID-19 and Sustainability through Strategic Management

Macro- Economic Impact

The seriousness of the Coronovirus was felt by the countries across the world by latter part of first quarter this year. So many days has passed since then. In all these days, total number of confirmed cases has only risen. So many lives have been affected by this pandemic. Though the crisis is causing enormous socio-economic challenges to the governments and the public at large are also facing many challenges such as loss of income, immobility, health risk and so on. However, with the number of recovered cases exceeding Covid19 cases, people across the world are still hopeful of leading better lives ahead in the new normal.

According to International Labour Organization (ILO) briefs, the pandemic is having a devastating effect on workers and employers in all sectors. It says, “We must increase investment in safe and decent working conditions for frontline workers and ensure that the pandemic does not leave long-lasting scars on economies, people and jobs.” The ILO brief shows how the governments have responded to the crisis and are focusing on four immediate goals:

Micro Level Impact

Microeconomics is defined as the study of individuals, households and firms’ behavior in decision making and allocation of resources. In this topic, the discussion will be centering on the subject with reference to individual firms and the ways and means to counter the effect of pandemic on them. For the discussion, the firms can be divided into two categories, viz.:

1. Micro, Small and Medium Enterprises (MSMEs);
2. Large Corporates.

Rescue of Micro, Small Enterprises & Self Employed

The distribution of the MSMEs in different sectors as per the National Survey of 2017-18 stood at:

Most of the Micro and Small scale sector enterprises are unregistered proprietary enterprises. Considering the importance of this sector to the National GDP, the Government has already announced several packages including affordable credit (without collateral) to revive them. However, it has been found that there is an absence of any reliable database in respect of this sector making it difficult for the Government to reach the relief measures which this sector needs urgently to resume operations and sustain through the critical period.

The state governments must encourage all MSMEs to register under Udyog Aadhar Scheme so as to create a reliable database. The message of various relief measures and the procedures to be followed to avail the same should be made to reach the people through advertisements in TV channels, Newspapers (both English & Vernacular), etc., so that they become aware of the Government initiatives to resuscitate these enterprises and approach the banking sector rather than high cost private money lenders.

In addition to the measures already announced, the Government(s) must consider grant of wage support for a fixed period and a subsidy for the income lost or fixed costs like electricity, water, rent and municipal taxes incurred during lock down period to encourage them to reopen. Many countries have come up with wage support subsidies. Germany, New Zealand, Singapore and Belgium have offered such benefits to micro and small businesses.

In the present economic scenario, the Government has a bigger role to play to meet the challenge and it should induct private sector with incentives to join hands in the recovery path. Recently, the Central Government revised the definition of MSME to grant benefits to more number of units in this sector. The revised norms are presented below:

But, being small, they would not have their own expertise to present their case with business forecast, projected cash flow, ability to repay the loans etc. They are also affected from lack of knowledge of internal controls, inventory management and production planning, financial leverage, the requirements and procedures for claiming the benefits in the package offered by the Government and go forward on the road to recovery and sustain their operations.

Medium and Large Corporates

Medium size enterprises are mostly either partnerships or private limited companies whose capital investment is between Rs 5 crores and ₹ 10 crores and turnover does not exceed ₹ 50 crores. However, these limits have been upwardly revised as per Table 1. Generally, such companies employ not more than 250 workers in industrial sector. Such enterprises are affected by the sharp decline in demand mainly due to consumer mood arising from the fear of catching corona virus and the need to live frugally in this crisis. Further, as these enterprises rely on migrant low cost labour, they are facing shortage of labour as most of such labourers have migrated to their native places.

There is no need to mention about large corporate sector which are governed by various laws and come under close scrutiny of the regulatory authorities. They are in industrial sector such as cement, steel, textiles, automobiles etc., and in the service sectors of the economy such as banks, insurance, travel, tourism, hospitality, IT & ITeS, entertainment and so on. Let us consider a few examples:

Strategic Management under Crisis Situation

As seen above, COVID- 19 has not spared even the corporate sector in spite of its size and strength. There cannot be a single solution which can be generally applied to all these companies as each sector is unique in itself. Individual unit has to carry out a self-analysis and come up with a solution to survive and sustain its operations at this critical moment and plan ahead for the future. It means that a flexible strategic planning is essential covering both immediate needs to stabilize and medium to long term plan to sustain growth.

It is, therefore, important that such units do a SWOT analysis and identify their core competencies. The pandemic has brought out total change in the life style and perception and preferences of the people. These changes in the external environment impact each sector differently. For eg., the pharmaceutical industry may see a great opportunity to introduce the new health care tools and medicines for the prevention and cure of the pandemic and thereby improve its performance substantially. On the other hand, the automobile sector will find it difficult to sustain its operations under the changed scenario.

The government has taken several initiatives such as making available more credit by reducing CRR and LCR for banks, reducing REPO rate and relaxations in regulatory measures. However, much needs to be done by increasing the capital investment in infrastructure development to provide tonic to spur the growth in the national economy which will assist the companies in different sectors to come out of the crisis.

The corporate sector may have to rely on data science, machine learning and artificial intelligence to study the new trends relating to its sector and be able select an appropriate strategy to operate successfully in the dynamic world. Such a study will be a learning process in order to adapt to the changing environment.

Methodology for Implementing the Strategic Plan (10-Point Action Plan):

The implementation of such a plan will enable the companies to deal with the question of “Going Concern” and provisions under IFRS-9 (or its equivalent Ind AS), bankruptcy code etc.

Banking sector faces tough challenge in view of potential spurt in NPAs due to economic downturn. RBI has to announce new rules regarding classification of non-performing assets differentiating between NPAs arising out of COVID-19 effects and earlier NPAs. The Banks also need to work out a new strategy to strengthen their operations including consolidation.

Joint Effort by State, Private Sector & People – An Example

At this point, it is appropriate to remember the words of John. F. Kennedy during his famous inaugural address, “Ask not what your country can do for you- ask what you can do to your country”.

So, it is not the responsibility of Government alone to set right the economy, but everyone has to put in their efforts one way or the other to ensure that the nation bounces back to realize its dream. One has to either rethink or think “out-of-box”. For example, let us consider the case of Dharavi in Mumbai. Though there have been several attempts to redevelop Dharavi slum for more than a quarter of century, there is no progress due to several reasons. The major point of contention is that the various proposals did not favour the residents and their livelihood. India has launched ambitious plans like Make in India, Swachh Bharat, AtmaNirbhar Bharat, Sub Ke Saath Sub Ka Vikas, etc. The success depends on the harmonious action.

In this particular instance, a new strategic partnership of the State Government, BMC, indigenous large construction companies, Housing Finance Corporations and the local resident and community associations as part of inclusive approach is needed as against approaches adopted earlier. The new strategy must be a human-centric approach aiming at fair distribution of the land for various purposes as under to inculcate confidence in the minds of the residents and provide assurance to secure their cooperation:

So the newly established organisation/ company must initiate dialogue with the residents under congenial atmosphere of cooperation to arrive at an amicable solution. When people know that their interests are being protected, protests will disappear. This will not only be a boost to the ailing construction sector and its dependent industries and service units in this crucial time but it will also aid in creation of jobs (direct and indirect) as against the current situation of lack of jobs.

Further, even the World Bank will be too willing to provide funds for such a mega socio-economic development project. As the people demonstrate their determination to defeat the disastrous economic impact of the pandemic through successful launch of this project, it will lure the foreign investors to choose India as a favourable destination for investment. This will put the economic recovery on fast track.

Once done, the sight which was an eye sore so long will transform into an eye pleasing sight and change the skyline of Mumbai. COVID-19 has shown that social distancing is absolutely impossible in slum areas and hence, change of attitude and thinking from all stakeholders are of paramount importance. This is the most appropriate time to embark on a project of this sort. It is now or never, because right now there is every possibility of getting peoples’ concurrence than ever after.