Indian Industries in Times of nCOV-19 Crisis
CA. (Dr) Ankur Bansal
The author is member of the Institute. He can be reached at bansal.ankur1987@gmail.com and eboard@icai.in.
“The fate of Indian economy in the midst of nCov-19 is still unpredictable. The pandemic crisis has disrupted the key sectors in manufacturing, service industries and financial industries. Indian industries are facing intricacy in their survival and going through their toughest phase. Loss of income, unbearable fixed nature expenses & disruption in supply chain break the backbone of Indian industries.
Even though, the Government’s fiscal and monetary policies are acting as a ventilator for the industries but final fate will come only after the end of this epidemic. Read on…”
Introduction
CORONA virus, a zoonotic, originated in Wuhan, China has the repercussion of more than $2tn on the global economy. More than 190 countries are infected by this virus. India, having the second highest population in the world, has more than 1500 people infected from COVID-19 and death toll exceeds 30 till the last day of March 2020 and number is still increasing.
Lockdown of almost all industries due to this outbreak has resulted in major economic disruption over the globe. Impact of Corona on the Indian economy is estimated to be $120 billion. India has taken various steps like the financial benefit to poor through Jan Dhan accounts, 3 months moratorium on loan, infusion of ₹ 3.74 lacs Crore liquidity and many more to mitigate the negative effects of the virus and revive the sluggish economic growth. Government is planning for a second economic relief package to alleviate financial stress. The future depends on the depth of COVID-19, it’s spread and duration. Its impact on Indian industries is uncertain until the end of the epidemic.
Paper is mainly based on secondary data, published report of Govt organisation, international Institutions, researchers etc.
Objective and Purpose
The purpose of this paper is (1) to analyze the effect of COVID-19 on Indian industries, organized and unorganised markets, service sectors, export and import and on others and (2) to discuss the various tools used by the government to tackle the problem. We have tried to summarise the impact of COVID on certain critical manufacturing and service industries.
Impact on Indian Economy
COVID-19 was initially a public health threat but now it is an economic threat also. It is affecting the economies of all developed and developing nations. India is in the top 15 most-affected countries due to disruption in manufacturing activity all over the world. Impact of Corona on the Indian Economy, which is estimated around $120 billion, can be assessed based on three factors: Demand, Supply and Finance. Disruption in the demand and supply can be felt both externally and internally in the Indian Market. Demand reduces due to declining in income and fear of contagion. Non-availability of medicines, treatment procedures and delay in development of vaccines has created fear among the people. People are spending their saving only on essential items. This causes an overall decline in demand. On the other hand, situations like lockdown or non availability of resources, hit the manufacturing activity causing a bottleneck in the supply chain. The difference in demand & supply wipes out the liquidity from the market, which deteriorates the economic condition of India.
India, after Globalisation, is an open economy and shares 2.1% of the global export and 2.6% of the global import. It can be understood from the trade data, India’s major importers are China, US, Saudi, Iraq & UAE and major exporters are US, UAE, China and others. All these are stuck in the outbreak and fighting for the suppression of corona. Lockdown in most of these countries halts all the trade activities among the nations. India, which is depending on import for most of the production activity on these countries, is heading towards economic disruption. Only from China, India import is around 14.5% and export is 5% in 2018 approximately. A glimpse of sectoral impact to date can be analyzed.
Share of Overall Imports in 2018
Major Import Partners: China (~14.5%), United States, Saudi Arabia, United Arab Emirates, Switzerland, Iraq, South Korea, Indonesia, Hong Kong, Iran, Australia.
Share of Overall Exports in 2018
Major Export Partners: United States (~16%), United Arab Emirates, China (~5%), Hong Kong, Singapore, United Kingdom, Germany, Bangladesh, Netherlands, Nepal, Belgium.
Sector-Wise Impact Analysis
1. Pharmaceutical Industry (Bitter Pills due to the shortage of key ingredients)
India ranks tenth globally in terms of value and third in terms of volume in pharma
Indian drug industry depends on Chinese import for approximately 70% of its API (Active Pharmaceutical Ingredient) and KSM (Key Starting Material) for key antibiotics, vitamins and other essential medicines like paracetamol, aspirin, metformin, amoxycillin. Lockdown led to the hike of 60-70% in the cost of APIs. The Department of Pharmaceuticals (DoP) with the collective steps of country’s drug regulatory authority (DRA) & Central Drugs Standard Control Organization (CDSCO) is trying to control the situation by taking steps like the ban on the export of essential medicines and API. This has resulted in the outperformance of healthcare indices in BSE & NSE.
2. Auto Sector (Crippled Cars due to unavailability of parts)
Contribution to Indian GDP may slip to 6% from 7.5%
Lockdown costs $2billion to Indian auto sector. In the first 3 months of 2020, there is a reduction of 10% in the revenue with more than 7.5 lakhs unsold units. TATA motors followed by Maruti, Mahindra, Ford, and Hyundai have shutted their plants as a preventive measure. In Electronic vehicle segment, China controls 75% of battery manufacturing capacity and plays a dominant role in its supply chain. This epidemic might enhance the cost of production of the vehicle and interrupt the production & supply of the electronic vehicle. However, Govt extends a helping hand by extending the validity of vehicle documents like fitness, driving license, permits, registration or other mentioned in the motor vehicle act expiring on or after 1st February 2020 till 30th June 2020.
3. Electronics & Durables Sector (Short Circuit in the Connections)
More than 14 lakhs Electronic retail store, 50 lacs employment & business worth of ₹ 4.75 lakhs Crore
India is the second-largest market for mobile phone and consumer durables. It imports 40% of demand as finished goods and for the rest demand, it imports raw material like Circuits, electronic chips and plastic material from China and assembles finished goods in the local market. Corona Outbreak disrupted these supplies severely. Now even though china has started its production again, the workers are hesitating in using the imported material due to threat of corona virus. Lockdown of markets curtails the demand of consumer durables. Experts anticipate a reduction of 20% in the business of this sector.
4. Solar Power Sectors (Cloudy & Rainy Days)
Expected to produce 80k MW energy in 2020 and 1 lac MW in 2022 in India
China, controlling 70% of market share, is the largest producer and supplier of Solar modules, frames & junction boxes used in solar projects. These account for around 60% of the cost of the project. The outbreak and lockdown in half of the world brunt the supplies of these modules, causing a decline in the supply of final goods and delaying in the deadline of ongoing projects. As per the survey conducted by Mercom India Research, 83% of participants expect a reduction of 20-30% in revenue due to this outbreak & lockdown. Indian government declares COVID-19 a force majeure situation for project developers who miss their deadlines.
5. Textile & Apparels (Broken Knit)
Textile & Apparel Industry earns $40 billion forex and generates more than 1 Crore employment
India is among the leading exporters of Apparels and textile raw material to the European Countries & US Market. The severe impact of COVID-19 in these countries leads to cancelling or deferring the ongoing orders. India already has a price disadvantage as countries like Bangladesh, Pakistan, Vietnam, and Indonesia are providing better material at a cheaper rate. Lockdown and slowdown in the Indian economy may hamper Indian textile international and domestic market by ₹ 1 lakh crore. The study done by CMAI (Clothing Manufacturers Association of India) estimates more than 40% drop of demand after the lockdown. Member of CMAI looks forward to wage subsidy and working capital support to cushion the fall of industries.
6. Agriculture Industry (Unwanted Monsoon Days)
India $14 billion Poultry market become shut under the fear of CORONA
COVID-19 has led to decrease in the export of agrarian product by 1.6%. Uneven monsoon and lockdown incident double the adverse impact of COVID-19. Untimely heavy rainfall damages the standing Rabi crops of farmers. The fear of virus and lockdown led the farmland labors to flee for their home. Non-movement of the perishable vegetables & fruits deteriorated the stock. Other Sectors like poultry, Fisheries, Meat sectors are facing the challenges due to the spread of rumors like they are the carrier of Corona.
To safeguards the agrarian economy, government enhance the crop loan repayment period till May 2020 and extended a benefit of 2% interest subvention to banks and 3 % to farmers as prompt repayment incentive up to 31st May, 2020 for all crop loans up to ₹ 3 lakhs which have become due or are becoming due between 1st March, 2020 and 31st May, 2020.
7. IT Industry (Virus in the System)
Generate 40 lacs jobs and Export contribution of $137 billion
The extended lockdown and quarantine in India restrict the movement of people and delay in on-site delivery of services. It has impacted the large discretionary spending of clients as it rattled several industries. Due to its severity many existing and ongoing project are not delivered on time and new projects are also declining all over the world. Cyber security is another issue in work from home program. Corporations are not prepared with work from home drafts like the limit of access of data, authorisation or other controls. This may raise an issue of client’s data security. In the midst of this, Department of telecommunication (DoT) has provided some relaxation in WFH terms & conditions to facilitate the continuous service.
8. Tourism & Aviation (Quarantine causing lot of turbulence)
Govt. suspended all international flight till 14 April 2020
As per data shared by Government, around 585 international flights are cancelled by March 6. Aviation industry met with a deadly wave of cancellation of domestic and international flight’s tickets. Travellers will be hesitating in using flights for domestic travel too even after the lockdown. There is a reduction of 67% of Foreign Tourist and 40% in domestic tourist in India in the first two months of this outbreak and now it is worsen more. Tourism and Aviation industries generated more than 26 million jobs and contribute 9% in Indian GDP which is now declining at a very high pace. According to industry chamber CII, this is one of the worst crises ever to hit the Indian tourism industry impacting all its geographical segments - inbound, outbound and domestic, almost all tourism verticals - leisure, adventure, heritage, MICE, cruise, corporate and niche segments.
9. Hospitality Sector (Love for Home & Food)
Decline in occupancy rate in hotels by 20% and price by 15%
Trade, tourism & travel industry directly impacts the Hospitality industry. Lack of tourist, the lockdown of industries and fear of travel will causes deep fall the revenue graphs. ICRA estimates a downfall of 30-40% in occupancy rate and planning to revise room rate in the near future is inevitable. A major problem in the sustenance of this industry is non-operational expenses (Fixed Expenses) like rents, salary or others. The expected loss in the hospitality industry is approximately $4 billion but the major loss is borne by the employees across all sectors. Hotel owners are thinking of steep salary cuts at top, senior and middle management tier.
10. Cargo (Export-Import) & Transportation Service (Wheels get Square in Shape)
Contribute $200 billion in economy & Generate employment more than 4 Crore
The logistic services are directly dependent on manufacturing activity. Worldwide lockdown and closure of major ports hinder the cargo movement all over the world. In transit, goods are not allowed to be unloaded. Rail & road transport of non-essential goods is also barred. This creates chaos among the local transporter due to a decline in their income to handle the cost. Government of India issued direction for the closure of all Seaports, Airports, Land Ports, Rail & River ports to prevent the spread of outbreak. However, there is no restriction on the movement of ships carrying essential goods.
India had faced several outbreaks in past 3 decades like HIV in 1984, Nipah in 2001, SARS in 2002, H1N1 in 2009, Zika in 2018 and now Corona in 2020. However, this new epidemic, novel coronavirus, instils both fear and anxiety due to its rapid spread rate, high mortality rate, lack of medicines and vaccines and lack of information about its behaviour. Moreover, several developed countries like the US, European countries are not able to develop tools to tackle this exponential contagion.
Conclusion with Recommendation
Corona virus impact on the Indian Economy is very harsh. It has disrupted the key sectors in manufacturing, service industries and financial industries. According to a latest Economy Forecast, there are chances that India will enter into a recession cycle with the remaining world if Covid-19 persists for more time. Indian Government & RBI measures act as an antitode in this situation. But many rating agencies cut down the growth estimates of Indian Economy as follows –
Indian Government has deployed the forces for the successful implementation of lockdown. The government is providing essential ration, temporary housing facility, benefits to farmers for the sustainability of the economy. The government prohibited the entry of foreigners in the Indian Border and has tried to bring back the Indian people stuck in other countries. Government has used the Jan Dhan Bank account as a tool to provide direct financial benefits to the poor people. Government issues the important guidelines related to lockdown, for marriages ceremony, for cremation and on other important subjects to make people understand better.
RBI has provided financial benefits like moratorium period for NPA declaration in loans, insertion of liquidity of ₹ 374000 Crore in the market, reduction in repo rate by 75bps to 4.40%, reduction in Cash Reserve Ratio to 3% etc. RBI has allowed 2% interest subvention to the bank and 3% to the farmers on prompt repayment incentive up to 31st May, 2020 for all crop loans up to ₹ 3 lakhs which have become due or have become due between 1st March, 2020 and 31st May, 2020.
Given such scenarios, the government must plan for the collaborative efforts of medical and technical institutions to develop tools and techniques. The technical sector should be calibrated with the health sector. To reduce panic among the citizens, government should run awareness drives against rumours and fake news about the outbreak through messages, videos and other tools. With the help of non-profit organisations, government may try to provide facilities in the backward area of countries. Government must categorise goods in three categories: essential, sub - essential and non-essential. This will help in early stimulation of the economy.
After the end of Corona Chapter, government must engulf in developing high-end health equipment and devote more of its budgets in health facilities. A permanent task force should be formed to encounter such situation in its early days. Government must include in the school curriculum subjects, as a part of disaster management, that impart knowledge on how to prevent and mitigate the risks of such pandemics. ■■■