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COVID 19 Impact on Different Industries in India

PANKAJ SHAH 
on 29 June 2020

LinkedIn


From March 2020 till the next 9 months are going to be very unpredictable for all the companies. This will majorly be dominated by the effects of the COVID-19 pandemic.

It is an unprecedented situation that nearly everyone in the world has decided to stay at home. People have quarantined themselves at home all around the world. Within a period of about a month, all the people decided to cut social contact with each other for the sake of humanity.

For the first time, such sort of disease has spread across all the countries at once. Approximately three billion people are currently under lockdown, millions of people suffer from adversities, and the entire human race is now in search of basic needs to have some resistance against this pandemic. Millions of people have lost their jobs, and the extent of this impact on the global economy extremely difficult to assess.

It will take at least two months to return to normalcy even if the global crisis has resorted. There are no doubts at all that business should resume, or there will be irreparable damage to the economy. All business sales are expected to rebound only after the crisis is over.

In order to better understand the situation let us plot a situation.

COVID 19 Impact on Different Industries in India

Assumptions : -

The COVID-19 pandemic subsides in India from its peak level and all businesses resume operations from mid-April 20 to August 2020 onwards, although in a staggered manner. –

Businesses across the globe (excluding China) also resume operations from June 2020, although in a staggered manner. - More businesses across China resume operations from April 2020 (over 60% of the companies in China have actually resumed in March 2020).

IMPACT ANALYSIS  OF COVID -19 in Industry

Sectors

Impact

Recovery Period

Reasons

Drugs and pharmaceutical

Moderate

Short Term

• Production is expected to recover quickly as the government is extending support for essential commodities.

• Businesses have started resuming operation in China, which accounts for around 85% of India's active pharmaceutical ingredients imports. This alleviates the supply chain disruptions, though not to a great extent.

Livestock

Severe

Short Term

• Prices and demand may increase after the outbreak.

Retail (non-food items)

Severe

Short Term

• Sales of essential items may recover quickly, while sales of non-essential items might take slightly longer to recover. However, pent up demand will aid a fast recovery.

Wholesale (non-food items)

Severe

Short Term

Textiles

Moderate

Short Term

• Discretionary spending is expected to remain muted for at least one quarter. However, the demand for essential commodities such as masks, cotton rolls, gauzes, etc. will not be negatively impacted.

• Even if demand for low-priced products starts reviving after a quarter, the uncertainty and slow growth or loss of income may impede a quick recovery for the next two quarters.

• Exporters will take longer to recover until recessionary pressures in the USA and European countries fade away.

Logistics

Severe

Medium Term

• Slowdown in the tourism sector will have knock-on effects on passenger traffic. Heightened risk aversion will prolong the recovery.

• Cargo traffic is expected to pick up once businesses start resuming operations across all countries. However, low consumption expenditure will delay the recovery.

 

Sectors

Impact

Recovery Period

Reasons

Metals

Moderate

Medium Term

• The metal industry has strong forward linkages to many important sectors such as automotive, construction, and infrastructure. Hence a slowdown in business activity in these sectors will inevitably drive down the demand for basic metals.

Automotive

High

Long Term

• Demand for cars is likely to be deferred or dropped given low consumer confidence, subdued economic activity, lower disposable income, and higher prices.

• Demand for commercial vehicles will be dependent on growth in Gross Material Products (GMP), which is expected to be slower.

• Component dependency will create supply-side disruption.

Entertainment

Severe

Long Term

• The biggest concern is the likely continuation of social distancing measures to avoid the risk of any relapses.

• Revenues from advertisements will be dependent on the revival of the aggregate demand in the economy.

Banking

High

Long Term

• The Reserve Bank of India (RBI) estimated that Non-Performing Assets (NPAs) may increase to 10.2-10.5% by September 2020. With the outbreak of COVID-19, this figure is expected to increase.

• The phase to recovery will depend on the outcome of the measures that the RBI has initiated and is likely to take place in the following weeks.

Gems & Jewellery

Severe

Long Term

• Exports constitute a major portion of the net sales for domestic companies. With recessionary pressures across the globe, demand for gems and jewelry is expected to be severely impacted over the next couple of quarters.

Sectors

Impact

Recovery Period

Reasons

Tourism

Severe

Long Term

• Even when the travel bans are lifted, both foreign tourist arrivals and domestic tourist movements are expected to remain very low because of heightened risk aversion, measures related to social distancing, and lower disposable incomes.

Hospitality

Severe

Long Term

• Slowdown in the tourism sector will have knock-on effects on hospitality. Occupancy rates may remain very low until Q1 2021.

• In an effort to increase and improve the bottom lines, many businesses are expected to cut down travel and accommodation costs for their employees.

Electronics

High

Long Term

• Demand for white goods and other high-end consumer durables will remain impaired as consumers are expected to postpone their purchases because of lower disposable income, and uncertainty over growth prospects.

• About 50-60% of the products and 70-80% of the components are imported, and a shortage of components of electronic goods from China is likely to keep prices higher and hence will impact demand.

Micro, Small, and Medium Enterprises (MSMEs)

High

Long Term

• Recessionary pressures across the globe are expected to have a direct impact on the level of global exports. Given that MSMEs contribute to over 40% of India's exports, the impact will be severe and linger for a longer time.

• MSMEs are expected to experience severe liquidity problems due to delayed payments from their customers.

• The strain in the banking system is expected to increase the credit gap for MSMEs.

Impact

Moderate

High

Severe

Recovery period

Short Term

Medium Term

Long Term

Up to 6 Month

7 to 12 Months

More Than 12 Months

 
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