The coronavirus outbreak, which originated in China and has infected more than 3 million people globally, and with more than 200 countries affected around the world, the World Health Organization (WHO) has declared it a pandemic. Since there is no vaccine to stop the spread of this virus, the countries are put into lockdown to mitigate the risks of spreading the virus.
When I started writing this blog, the number of coronavirus cases in India has crossed 42,000 with 1350+ deaths and the country is under lockdown for more than 40 days. Due to this coronavirus outbreak, The Indian economy has taken a huge hit. Many companies have implemented mandatory work from home policies and some major manufacturing companies have temporarily suspended their operations. These limitations have led to a business slowdown in various sectors. Let us look at the impact of coronavirus in some of these sectors.
This has been a very challenging period for the automotive industry. Indian Auto sector is dependent on China for imports of around 20% of automotive components and imports 25-30% of tyres from China. The shutdown in China has impacted the Indian auto companies in January itself, as parts were not reaching on time. Then the lockdown in India has forced the automotive companies to stop production entirely and this led to a steep decline in vehicle sales in March. Total vehicle sales have gone down by nearly 45%.
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Source: The Economic Times
April has been the worst month ever for the Indian Automotive industry as no units have been sold across the country due to the shutdown of showrooms and manufacturing facilities.
The Indian automotive industry is suffering a loss of Rs.1200 crore per day during this nationwide lockdown. In this situation, most companies are trying to avoid layoffs by cutting fixed costs such as salaries. Most of the Auto companies have paid full salaries to their employees for the month of March but as April was a complete washout, companies are asking its employees to take a pay cut. Employees have no other choice but to agree for a pay cut as taking a pay cut is better than losing their jobs.
The technology sector is dependent on global demand, the majority of revenue for the Technology sector comes from outsourcing. Nearly 70% of Indian IT revenue comes from the US and Europe regions. These regions are among the worst affected areas by the coronavirus. Since the growth rates of the US and Europe are going down, this can impact the Indian IT industry. At this stage, clients might rethink their IT strategy and might reduce their IT spendings this year. Indian IT firms are already facing the issue of project cancellations by the clients. In this current situation, big companies have freezed their hiring. However, small companies have started to lay off their employees to cut down on costs.
Not all is not bad for Technology companies. With people staying in their homes, the demand for video conferencing tools like Zoom, Microsoft Teams, Skype, hangouts has increased. We have become reliant on technologies that allow us to work from home. Companies like zoom, slack technologies are making a profit out of this situation. Slack, which provides a platform for people to communicate easily has seen a 40% increase in paid subscriptions this quarter.
FMCG and Retail Sector
The retail businesses have been severely affected by the Shutting down of malls and shops. Since the lockdown was imposed, nearly 95% of non-food retailers have closed their businesses and have no revenue during this period. There is an estimated decline of 50% in the sales of consumer products during the lockdown. The retail industry staring at huge layoffs and small retailers are likely to be affected the most. Small retailers may be forced to lay off 30% of their employees. According to the Retailers Association of India (RAI) Survey, about 20% of the jobs (80,000 jobs) in the retail industry may get affected.
The lockdown has led to the growth of sales of FMCG companies making daily necessities. Immediately after the lockdown announcement, there was a surge in demand for Household and FMCG products owing to panic buying in the customers. Even big companies have reported an increase in demand. However, once the lockdown was implemented, The lack of workforce in the industry has caused a delay in the production and delivery of FMCG products. There was a considerable slowdown in the growth of these products.
The coronavirus lockdown has caused massive disruption in the food and grocery supply chain. The lockdown has led to many consumers rediscovering their cooking skills, which has led to more consumers buying food ingredients from grocery stores. Kirana stores have witnessed a 39% growth during the lockdown, as per a recent report on Indian food retail by McKinsey during the coronavirus pandemic. Since distributors were unable to transport essentials, most Kirana store owners are physically picking up as many grocery products as possible from the distributors, they are ensuring that essentials are available to the consumers.
Aviation is among the worst affected sectors due to the coronavirus pandemic. With all the Domestic and International flights canceled during this lockdown, The Indian aviation sector is projected to incur a loss of $3.3-3.6 billion in the April-June quarter if flight services remained grounded until June-end. With the existing bookings being canceled, No airline carrier is in a position to refund passengers who had booked tickets. Instead, some airlines have told passengers that their entire amount will be secure in a “credit-shell” which can be used to re-book travel later in the year or early next year.
Cash reserves of airline companies are running low and with no signs of government assistance, The Indian aviation sector is close to bankruptcy. With no revenue, some airlines are terminating the contracts of their pilots, have also asked their employees to go on leave without pay.
The Indian pharmaceutical sector is the world’s third-largest drug producer by volume. India supplies affordable and low-cost drugs around the globe. Despite the coronavirus crisis, the Indian Pharmaceutical Market has registered a growth of 8.9% for March 2020. This is mainly due to the panic buying of medicines for chronic diseases.
India’s manufacturers rely heavily on imports of APIs (Active Pharmaceutical Ingredient) from China. Because of Lockdown, there was a delay in the production of APIs, which resulted in less availability and higher costs for the production of generic medicines. This has exposed the dependency of the Indian pharma companies on China for its API procurement. Even though there is a supply shortage of raw materials from China, There is no immediate risk to the Indian pharma industry. Most companies have enough inventory to tackle this situation. The Indian government has proposed a package of 13.76 billion rupees to boost the manufacturing of APIs and medical devices in the country.
The Hospitality sector is dependent on travel and tourism but with tourism being the first sector to be disrupted by the impact of coronavirus, this had a huge effect on the hospitality sector. With the country going into full lockdown, the flights and trains across the country have been canceled. This has led to huge cancellations of Hotel bookings. The Indian hotel industry is estimated to face a loss of Rs.90,000 crore during this calendar year as nearly all the hotels are closed for more than one month. Hotels have a lot of fixed costs like wages to employees, Government taxes, and others. Most hotels capital component is normally debt and they have to repay the interest and principal amount. Even though the government took the good step by announcing a moratorium on interest and principal repayment for 3 months but with no revenue for more than a month, the companies will not be able to pay the installments even after the lockdown.
Since the outbreak of coronavirus, companies have been canceling interviews at the top hotel management colleges in India. The overall hiring in this sector came to a halt. 15%-25% of the employees across the various hotel companies in India are contracted staff. With the current situation, these people will be the first ones to be laid-off. According to a KPMG report, The Indian hospitality sector is set to lose more than 3.8 crore jobs. The Industry is looking for minimum support from the government to push back the repayments of installments and some support for paying salaries to the employees.
Chemical industries have been highly impacted due to the shortage of raw materials from China. The growth of India’s Electronics and Textile industry has also slowed down due to the coronavirus lockdown. These industries are very much dependent on China for the import of raw materials. The spread of coronavirus has pushed down the sales of these industries.
Entertainment Industry is adversely affected by the lockdown. The Indian film industry is going through its worse phase. Movie releases are postponed, Film and TV shootings halted and events like Cannes film festival canceled. The livelihood of the number of daily wage employees working in the Film industry has been affected. With no income, they are even struggling to buy the basic necessities. Most of the Movie celebrities are giving donations and making an effort to help these people in this situation.
With more people staying at home, there is an increase in the use of other entertainment services such as games and video streaming applications. There is an increase in the number of subscribers for Netflix, Amazon Prime Video, Hotstar during the lockdown.
Coronavirus pandemic has impacted all the sporting events across the world. All the sporting events have been either canceled/postponed. The cancelation of sporting events will be a huge loss and it will impact the jobs of many people.
Way ahead for the Indian Businesses
The coronavirus pandemic has exposed the dependency of Indian Manufacturing companies on China. Automotive, Pharma, Chemical, Electronics, Textiles, all these sectors are dependent on China for the procurement of raw materials. During the 2018-19 period, India’s overall imports from China is $70 billion. Indian government should encourage domestic production and help the Indian companies to set up new production units across the country.
Companies around the world are looking to move away from China. Companies depending on the supply chain in China are now beginning to diversify their supply chain. This is a golden opportunity for India, India can become a supply chain partner for these companies.
Once the lockdown is lifted, for the businesses to recover, it all depends on the consumer demand. The government can consider tax cuts to increase consumer demand.
Even after the lockdown is lifted, initially, people might still want to maintain social distancing, so they avoid using public transport and switch to individual transport. With an increase in demand for own vehicles, this can be a growth opportunity for the Automotive sector.
It will take some time for the businesses to come back to normal. Airlines, Hotels, Restaurants, Malls, and Multiplexes will face a problem of liquidity as there is no revenue for these industries for more than 1 month. It is just not a matter of businesses starting up. The entire ecosystem has to function at the same level. The return to normalcy will also depend on how quickly the consumers recover from the impact of coronavirus.
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