CoronaVirus or Covid-19 pandemic has brought mass disruptions in the way Homo-sapiens conduct themselves across the globe. With more than 2 lakh deaths (and counting), the World has been brought to a standstill. Be it service or manufacturing sector, the upsetting and its consequent ripples are visible across all the sub sectors that contribute to the Global Economy (with Asian Development bank estimating the economic cost to an elephantine US $4 trillion).
Indian Economy too is poised to observe changes due to the pandemic. Lockdown, though was necessary to control the spread, has made matters only worse for an economy that was on a path of instability after recent government policies. Q1 of FY20-21 has begun with non-contribution to the government coffers. CARE ratings says that ₹40,000 crore are getting siphoned off every day from the economy due to Lockdown. Hardest hit will the employment numbers, what with contractual labour force out of jobs. The IMF has also lowered the growth of Indian GDP to 1.9% (which fortunately is still the highest among the biggest economies of the World that are a part of G-20 community). Under the lockdown period, less than a quarter of Indian economy is functional. Only those services that are classified as Essentials (mostly concerning FMCG, Logistics and Banking sector) are kept out of purview of lockdown.
Once the world comes out of this pandemic, it will take a massive effort, both for the governments and the enterprises to devise new strategies to mark their relevance in the market. As many economists believe, Covid-19 will be a watershed moment in the modern history which will separate the two eras of pre-Covid pandemic and post-Covid pandemic. Most sub-sectors will remain unaffected or will experience minute affect like Power, Gems and Jewellery, Infrastructure, Petroleum and Chemicals, Telecommunications and Mineral-based industries. These sectors are expected to grow at increased pace with little deviation from existing blueprints. However, I feel some Indian sub sectors will have to undergo a change in their approach in post-Covid era as:
1. DEFENSE:
I’m expecting an expenditure-cut in Defense sector, effecting primarily defense procurement and equipment production. This means that crucial S-400 Missile systems from Russia and Rafale fighter-jets from France might also be delayed. Indian defense services are in dire need of latest weaponry with its 2/3rd weapons outdated and threat on the Western side of border increased after abrogation of Article 370.
Reason: 15.5% of Central budget allocation (2% of GDP) is spent on Defense sector. With pandemic affecting the World, most nations have suspended their military training activities. With Europe and USA remaining highly affected from Covid-19, defense production will take a backseat, thereby delaying the fulfillment of existing contracts.
2. EDUCATION:
The academic calendar of schools will change, in terms of examination and syllabus covered. Delayed Entrance and Competitive exams and internship and job offers will impact college students. Schools and colleges that were earlier rejecting e-learning as futuristic tool have accepted this new mode of teaching, though in the long run conventional blackboard-chalk will return as modern technology gives no or limited tools to teachers-parents to measure progress of students. I estimate that this academic year to be unfruitful for most of the students as not every student and teacher has digital literacy to access and use online learning. The issue of payment of student fee and teacher salary disbursement to maintain running costs will have to be initially borne by the management.
Reason: Educational institutions are completely closed under lockdown. Even when the lockdown lifts, parents will not be willing to let their children go to school/college or stay in a hostel. With teaching moving to online mediums, digital books will be preferred as against print books.
3. AUTOMOBILE:
Apart from being the largest producer of tractors, India specializes in manufacturing passenger and commercial four-wheeler and two-wheeler. I predict a big recession looming on automotive sector. The only bright spot that the Indian Automobile sector can expect will be during festive season. Taxi-aggregators and app-driven cabs providers (Ola/Uber) can expect a drop in their customers, with people preferring their own vehicles. Companies planning to make a debut or Models expecting a face-lift will get delayed as the manufacturers will prefer a launch when economic outlook gets positive. Also, I expect vehicle-makers will be launching CoronaVirus specific safety features, which may include a Smart Air-Purification system or anti-bacterial surface treatments.
Reason: Domestic automotive sector was already struggling even before Covid pandemic hit India due to Bharat Stage 6 (BSVI) transition to vehicles and reduced consumer demand. Further, imports from China accounting to 27% will be impacted due to closure of factories, 50% of the contractual labour being driven out and unenthusiastic recent customer sentiment, the positive transition can be expected only after Q3.
4. AVIATION:
Like Automobile sector, Aviation sector is also forecasted to be plagued massively due to CoronaVirus. Even though most countries, including India might lift blanket travel ban, yet restrictions will not favour frequent flyers to opt for air-travel. Domestic market might witness a wobbly start of operations. I expect air travel to remain suspended along Pacific, North Atlantic and European sides as long as Q3.
Reason: Cash reserves of the airlines are already running low. With no buyers of Air India and closing down of Kingfisher-Jet airlines, Indian aviation sector was already on a ventilator and decreased demand will lead to lower airfares and cost cuts. With international and domestic travel suspended, demand for turbine fuel will also decline.
5. TOURISM/HOSPITALITY:
Tourism is the biggest beneficiary of Aviation sector. While fewer travelers, tourism industry will also be impacted big time. Room rents and Hotel occupancy rates are envisioned to crash (as much as 50%). In 2019, 1.09 crore foreign tourists visited India; this number will drastically decrease this year. Behavioural changes may lead to less socializing, thereby impacting Food and Beverages in restaurants. Highest amount of unemployment will be visible as this sector caters to both rural and urban strata of the society. Recovery will be gradual.
Reason: Summer vacation bookings already stand cancelled. With governments too advising citizens to stay at home, general populace too won’t be interested much in travelling. With Indian government suspending all tourist visas and enforcing a blanket travel ban for overseas tourists until the global pandemic situation improves, foreign tourists too will avoid travelling to India. People will prefer maintaining social distancing and avoiding crowded places, which may affect Parties, Ceremonies and Wedding functions.
6. MEDIA AND ENTERTAINMENT:
Social media has already changed the way we socialize. As global pipelines clog, it will present a unique opportunity for businesses to start local VFX and animation centres. Tele-marketing will shift to e-marketing with evolution of delivery model. Indigenous OTT media platforms like Zee5, Alt Balaji and International OTT platforms like Netflix, Amazon Prime, Disney-Hotstar will be experiencing an upward growth even after lockdown ends. With introduction of newer concepts, ease of viewing, wide range of selection and no censorship from the government, I forecast OTT and digital platforms to grow higher.
Reason: With multiplexes and cinema halls closed, OTT platform will witness more traffic and lockdown enforcement will result in habit formation. Production houses will be willing to focus on mobile platforms because they will concentrate on Artificial Intelligence and Machine Learning to analyse customer behavior.
7. SERVICE SECTOR:
With reduced demand from developed economies, IT sector may be severely impacted, even more than 2008 global financial crisis. With work from home becoming a success, companies may decide to allow employees to work outstation or on alternate days, cutting down on office and travel expenses. While my prediction may seem far-fetched today, but futuristic office managements may decide one day per week (say Friday) as work from home day.
Reason: Office managements will have to brainstorm on ideas of maintaining social distancing at their offices, air ventilation channels, team working and introducing contact-less technologies to reduce contagious disease transmission. While work from home ideology may have a lot of problems today, but once dedicated work starts in this direction, improvements are bound to happen.
Sectors like FMCG, Logistics and Banking (with financial services) are expected to be highest growth making enterprises; with FMCG remaining spoil-proof from lockdown, Logistics focusing on maintaining supply-chain during & after lockdown and Banking services being the backbone of the economy will be addressed largely by the government. Further, with normal monsoons predicted in 2020 by Indian Meteorological Department and timely harvest of crops, I predict that the effect of Covid-pandemic will not be much on production in Agriculture sector (though could lead unemployment in villages and towns). The strength of agricultural sector will be based solely on supply-chain management to Mandis, local procurement centres and further to commercial and domestic buyers. India is a sleeping giant in field of healthcare, which if revamped, can fulfill global demands in terms of doctors, nurses, technicians and producing medical equipment. Healthcare and Pharmaceutical sector has chances of growth only if government doesn’t wither away its focus after lockdown opens, or else the transition will stay consistent. (Indian Pharma companies rely heavily on import of ingredients).
While some experts opine that Reverse Globalization can be a matter of concern as the European and Latin American markets would want to reduce their dependence on Chinese factories and would want to manufacture locally. I differ from them because I feel that the cheap markets of South-East Asia like India, Thailand and Vietnam will continue to remain attractive because most of the European and American markets function on the Model of Consumerism, which focuses on production of Goods on a mass-scale, at less price with many options to choose from. Only the labour-rich South-East Asian markets can fulfill the thirst of consumer driven Western cultures that catapulted China to the “Factory of the World” title in the first place. However, I’m a strong proponent of Reverse Globalization of Indian market, where the focus of production shifts back from Chinese-made goods to Indian production. In terms of economy, I believe it is a golden opportunity for Indian companies to shift their base back in India. The “Make in India” campaign that has not been much of a success since its launch in 2014 can grossly benefit from both the measures, of MNCs coming to India and Indian companies coming back home. Thirdly, the focus should be fulfilling Gandhiji’s dream of Gram Swaraj that pivots on building fresh units in villages having self-sufficient economy. These small clusters can cater to local demands and can function as independent units.
The prime task for the government for converting world’s revulsion for China into economic opportunity is by arranging long-term foreign capital. Though there has been a big push in the infrastructure sector, still a lot of work needs to done to match it to global standards. Till the time foreign institutions are assured of protection of their economic interests, it will be a difficult time, convincing them to come to India. This pandemic can become an engine of growth for the Economy, if and only if bureaucratic and political hurdles are addressed to. Red-tapism or Babu-culture has been a barrier of growth even after liberalization reforms enforced in 1991 and 1998 after Asian markets crashed. Stimulus packages especially to MSMEs (micro, small and medium enterprises) are the need of the hour. MSMEs are usually labor-intensive units and are already struggling with issues of serious shortage of raw material, labour and cheap imports. It is indeed welcoming that India changed its policy on Foreign Direct Investment (FDI) to curb ‘opportunistic acquisitions’ of Indian companies due to the current pandemic, with main aim to stop China making hostile takeovers.
The month of May will be even more crucial as the country comes out of a total lockdown. Even though the government will allow relaxation and open some industrial units, the labour that has migrated back to their homes might slowdown the pace with which the economy needs to be restarted. The business owners will have to address the issues of working capital and social stigma attached with CoronaVirus to bring their production levels back to track. At this point, more than the Central government, the state governments will have to take a step forward to facilitate the interests of local businesses. In layman language, the focus should be to build, build and only build infrastructure, thereby absorbing large amount of labour and generating capital.
This crisis has already strengthened India’s position in the World after Indian government and Pharmaceutical companies agreed to help the Covid-affected nations by shipping Hydroxychloroquine tablets. The way we structure the Economy post-pandemic will decide India’s fate for the decade.
Keeping my fingers crossed for a positive scenario!
Anuubhav Says 