COVID-19 India Industry Impact

by Admin | Sep 20, 2020 | IITBOMBAY-WU

The COVID-19 pandemic has turned into an unprecedented humanitarian and economic disaster and India remains one of the worst affected countries in the world. India’s recovery projection is weak as we struggle to get past the peak of the pandemic which still remains largely an unknown. The outbreak has presented fresh challenges for the Indian economy, causing a disruptive impact on both the demand and supply side with enough potential to derail India’s growth story.

On the demand side, tourism, hospitality and aviation are among the worst affected sectors that face the maximum brunt of the present crisis. Shut cinema theatres and declining footfall in shopping complexes have affected the retail sector negatively by impacting consumption of non-discretionary and more so of the discretionary category. According to CMIE, India lost 6.6 million white collared jobs between May and August 2020. With widespread fear and panic now a reality, the overall confidence level of Indian consumers has dropped significantly, leading to postponement of their purchasing decisions. On the supply side, shutdown of factories and the delay in supply of goods from China affected many Indian manufacturing sectors like automobiles, pharmaceuticals, electronics, chemical products to name a few. The supply side of the economy is seeing a gradual recovery with migrant workers now returning back to where the work is.

Here are some impacts (current and potential) with a random representation from key sectors that contribute to more than 5% to our GDP:

Auto and auto components:

  • Sector contribution to GDP – Auto 7.1% and auto components – 2.3%
  • Employment – Approximately 40million jobs
  • Cash flow tightening will impact market further
  • Passenger vehicles (2-wheeler and 4-wheeler) demand may continue to be muted owing to market sentiments and purchasing power
  • Short term demand of commercial vehicles will fall
  • Liquidity and cash crunch situations that has already put a dent in the sales of fleet operators is expected to worsen
  • OEMs are expected to delay new launches by a few quarters

Aviation & Tourism:

  • Sector contribution to GDP – Aviation contributes USD72million to GDP (FY19) and tourism contributes approximately 9.2% to GDP (FY18)
  • Employment – Aviation supports 8 million jobs and tourism supports 42.7million
  • Crisis is set to be much greater than earlier ones like 9/11 and the financial meltdown in 2008-9
  • India’s tourism sector may face questions around its very survival
  • The Indian tourism industry is staring at potential job losses to the tune of 38million which is almost 70% of its workforce

Building and Construction:

  • Sector contribution to GDP – Sector was expected to contribute 13% of the GDP by 2025
  • Employment – One of the largest employment generators in the country with impact on 250 allied industries
  • Housing sector will see muted demand with very few projects launching
  • Slowdown in US and Europe will impact investments in commercial real estate
  • Hospitality sector is staring at huge financial losses and retrenchment
  • Data centre related sectors may see a rise owing to more online transactions and a huge migration to work-from-home scenarios and thus enterprises seeking more safe and secure data environments.

Consumer, Retail & Internet Business:

  • Sector contribution to GDP – Retail contributes to 10% of GDP
  • Employment – Contributes 8% to employment (2018-19)
  • Includes household and personal care, healthcare and food and beverages
  • Stronger demand for e-delivery with focus on essentials
  • Consumer sentiments gravitate towards cash conservation leading to discretionary and luxury spending taking huge hits
  • Export opportunities available in non-China countries

Financial Services:

  • Bank profitability will be under pressure due to:
    • reduced off-take of loans
    • increased delinquencies
    • fall in transaction based income due to lower cross-border trade
    • fall in fee income
  • Retail financing industry will take a hit at least for 2 quarters if not more
  • Potential risk of defaults and insolvencies given the unprecedented challenges the corporate sector and the retail industry are facing

MSMEs:

  • Sector contribution to GDP – 30-35%
  • Employment – 114 million
  • AIMO estimates that 43% of MSMEs will see closures if the lockdown went beyond 8 weeks
  • Micro enterprises in the services sector are deeply impacted
  • MSMEs engaged in hotel, tourism and logistics have witnessed sustained sharp fall in business
  • Consumer goods, garments, footwear, utensils and automotive segments will see a direct impact

Transport & Logistics:

  • Sector contribution to GDP – 14% (2018-19)
  • Employment – 8.7 million
  • Reduced demand for logistics due to reduced production across sectors will put downward pressure on prices in the industry which includes warehousing, freight and transportation
  • Due to the capital intensive nature of this business and owing to reduced demand, the sector is projected to experience cash flow constraints. This will result in reduction in discretionary spending by the sector thus affecting the sale of commercial vehicles.

The increasing spread of covid-19 has radically disrupted the conventional patterns of doing business and economic interaction and behaviour. The current downturn is not a transient recession but a much harder and exogenous hit on the fundamentals of the Indian economy. It is also a shake-up of the world economic order. The collective experience of living through this pandemic, seeing essential sectors revive and once again give way to other forms of demand-supply equations will rewrite the rules of how business will function in the post pandemic era. It will also lead to realizations and a realignment of priorities for humanity at large.

Source: FICCI, KPMG

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