With the dawning of the concluding year of the decade, a word created the strongest buzz around the globe, negatively impacting the global economy. We, in India, were initially under the misconception that the virus would be confined within the restricted territories of few selected nations. But, soon we were proven wrong. Within weeks, the country witnessed the rising Coronavirus cases and had to opt for the total lockdown. The pandemic attacked the human civilization when the world was already sailing through troubled waters, like economic slowdown, rising crude prices, global tensions, trade wars between nations, unemployment, and the list goes on. It just added the cherry on top of all the existing problems, eradicating millions from the face of the planet.
COVID-19 has resulted in halted economic and industrial activities, plummeted consumer demands, crashed stock markets and the disruptive supply chain. The lockdown in India continued for almost three months, with strict restrictions in containment zones. To save the crashing Indian economy, the lockdown is lifted, implying our safety is on our hands. The pandemic has harmed the economy enough already, hinting at an extremely sluggish recovery rate.
The three pillars on which the nation’s GDP is dependant are the external trade, domestic consumption and investments. All the industrial sectors, like Retail, Finance, Travel and Hospitality, Logistics etc are witnessing a massive blow. The aftermath of the prolonged lockdown will be more prominent now. Business experts opine that a wave of severe demand shock is on the rise, with an urgency to improve the economic condition. According to KPMG reports, “Among the most striking consequences of this pandemic have been the game-changing impact on our social behaviour, as well as on legacy networks and patterns of economic activity. Speed, agility, and innovation are required from governments, businesses, and society in crafting responses to cope with this evolving new normal.”
Estimating the current scenario, The Hindu reported, “In our forecast we have factored in a larger stimulus package, not just 1 per cent of GDP of fiscal measures that have been announced so far. You may recall that Prime Minister Narendra Modi announced 10 per cent of GDP as measures, but 9 percentage points were non-fiscal in nature. There was also an announcement of bond issuance, borrowing requirement of government and that was 2 percentage points of GDP.”
World Bank, in its latest edition of Global Economic Prospect, forecasted a sharp decline in the economic growth rate of India. And strict measures for controlling the pandemic will result in curtailing short term activities. “World Bank on Monday sharply scaled down its projections for India’s economy, forecasting 3.2 per cent contraction in the fiscal year 2020-21 because of the Covid-induced lockdown. It had earlier predicted 1.5-2.8 per cent growth. The country’s economy grew 4.2 per cent in 2019-20, the slowest in 11 years.” The report also mentioned that “India’s economy should bounce back in 2021-22 and pegged growth at 3.1 per cent. Still, it is lower than 4-5 per cent growth projected by the bank earlier. India could lose the tag of the fastest-growing large economy to China for two years. China is projected to grow at 1 per cent in CY2020, and 6.9 per cent for CY2021.”
Unemployment Affecting India’s Economy
The lockdown in India started from 21st March 2020, and by 24th April 2020, the unemployment rate has increased by nearly 19%, and then by 26% within a month, as noted by Centre For Monitoring Indian Economy. Around 14 crores people lost their jobs during the nationwide lockdown. Above 40-45% of households in India claim to have negative impacts on income due to the lockdown. Travel and hospitality services have incurred humongous losses during the lockdown, where employees faced salary cuts and layoffs.
Indian ride-sharing service Ola Cabs witnessed 90-95% fall in revenue since the beginning of the lockdown. The travel restrictions and the shrinking consumer demands hampered business growth in several sectors. The decline in revenue leads to layoffs and severe blows of unemployment. CII, ASSOCHAM and FAITH estimate that the workforce involved with tourism industry faces unemployment. Live events industry saw an estimated loss of ₹3,000 crores (US$420 million).
“The labour sector under the MGNREGA, 2005 are worst impacted as they are not provided jobs due to lockdown, most of the labour sectors are associated with the construction companies and daily wage earners. Travel restrictions and quarantines affecting hundreds of millions of people have left Indian factories short of labour and parts, just-in-time supply chains and triggering sales warnings across technology, automotive, consumer goods, pharmaceutical and other industries.” The generation of new jobs is nose-diving at an alarming rate, with economic slowdown of India.
Sectorial Impacts on Economy
The coronavirus outbreak has disrupted manufacturing segments, supply chain, stock market, agriculture, MSMEs and gig economy, energy sector, hospitality industry, internet business, eCommerce, logistics, healthcare, real estate, finance etc. While all the sectors are affected, some are facing tough times to sustain themselves, while some are overloaded with huge consumer demands. The winners and losers of the hard times can be identified distinctly. The retail, apparel segment, automotive, restaurant businesses are facing sluggish growth rate, whereas the consumer goods like packaged food items, essential items like groceries and daily edibles are witnessing soaring demands. Nestle Maggi has witnessed a massive growth amid lockdown due to rising consumer demands. The consumer durables sector, on the other hand, is facing a decline due to reduced demands for electronic appliances, furniture etc.
The food delivery sites like Zomato and Swiggy have been hit, with 60 to 70% reduction in their business. The Ministry of Agriculture has noted that the supply of food and Agri products will be affected due to the low sowing of the seasonal crops for the upcoming season. This will, in turn, hit the mandi operations. The companies dealing with Agrochemicals depend largely on the export of finished goods and import of raw materials. With the supply chain disruption and transportation restrictions, it seems problematic.
The government policies will be a key factor to determine the pricing of the transport and logistics facilities. The supply chain inefficiencies are here to stay for quite a long time, and it will be better to align the labour forces to work for the essential services, as pointed out by KPMG. The stock market condition during the pandemic is at its worst. The market is bearish, and this moment can be put to use for several investment options. Even the real estate segment is down, with a 20-30% decline in rates.
The public health expenditure is expected to rise up to 2.5% of India’s GDP by 2025. The price of sanitizers, soap, disinfectants, hand wash, masks, and gloves will face a surge in pricing structures, and it will continue to grow until the production can match the expanding consumer demand.
The gig economy, MSMEs are facing a financial crunch, problems in getting seed-stage funding. The government of India has taken initiatives for providing financial support to the gig economy which directly impacts the GDP. They are observing liquidating constraints and obstructed purchasing capacity. “Banks and NBFCs will offer up to 20 per cent of entire outstanding credit as on February 29, 2020, to MSMEs. Units with up to Rs 25 crore outstanding credit and Rs 100 crore turnover are eligible for taking these loans that will have four-year tenor with a moratorium of 12 months on principal payment. The scheme can be availed till October 31, 2020. The government will provide complete credit guarantee cover to lenders on the principal and interest amount.”
Upcoming Trends in India
As emphasized by Prime Minister Narendra Modi, India must shift towards localization, going “vocal for local”. It is expected to proceed to greater localization of the supply chain, for both essential and non-essential services. The increasing digital dependency is more prominent as all majority of the organizations, of all the sizes, are opting for “work from home” or remote working models. They are virtualizing operations, where all the employees are ‘online’ and contributing to the Future of Work.
Even the most brick and mortar organizations, traditional incumbents are experimenting with remote working models and digital channels. Be it employee monitoring or organizing a virtual meeting, technology is everywhere. The current times is seeing some major investment opportunities in cybersecurity, cloud computing, data management, etc. The organizations are building agility while being customer-centric, improving the employee experience and reinforcing stable team dynamics. As mentioned earlier about the supply chain inefficiencies, being resilient is the key. It is important to note that the resilient capabilities are developed to sustain any unexpected situations or repercussions and to continue with efficient business operations. The volatile market conditions and changing times demand businesses to develop variable cost models. They must plan what they can keep ‘in-house’ and what they can outsource for better cost management.
Conclusion
The Indian economy is bending due to the massive load of the lockdown aftermath. The lockdown was the immediate solution to check the transmission of the virus in such a highly populated nation. But the lockdown cannot be a permanent solution. The lockdown is lifted keeping in mind about the economic tsunami. The safety of the citizens depends on themselves. The economy will have a slow recovery rate, and being a citizen of the country it is imperative to do our duties diligently.