How Covid-19 Pandemic Effect The Business Sector?

T he Covid-19 pandemic has impacted economies around the world like no other event that experts can recollect since the Great Depression.

India, too, has been hit hard. Global rating agency has slashed India’s GDP projection for FY21 to 0.8 percent. The Covid-19 pandemic has been a huge blow to India, especially since many sectors were already facing a crisis when the virus storm hit.

Some of the strongest economies around the globe are struggling to cope with the situation in the wake of an unprecedented demand shock and a shutdown of all key economic activities that drive growth. A large number of businesses are staring at unprecedented losses due to the situations prevailing around the globe and in India.

Many sectors have appealed to the government to ease some restrictions so they can at least resume business or grant some relief so they can at least pay wages to their employees. Here are 5 sectors in need of urgent help and cooperation from other sectors better position amid the crisis:

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MSME Sector

The Micro, Small, and Medium Enterprises (MSMEs) are the backbone of all Indian sectors and often engaged in manufacturing and export activities.

Today, almost all MSMEs are out of action due to the lockdown, chocking all production activities at major firms across sectors. Several reports indicate how MSMEs are reeling under crisis and have no money to pay their employees.

The government has released Rs 20,000 crore relief package, divided into two funds, for helping MSMEs. Rajesh Gupta, Co-founder, and Director, BUSY Infotech, said,

“The world is going through something unprecedented. Nearly a third of the globe is in lockdown. Due to this lack of trade and shrinking sales, MSME's are feeling the burden of loans, repayments, GST filings, etc”

“Even after getting support from the government, many of them are almost on the verge of losing their control over losses and unable to generate revenues as well and fighting for their survival. It will be very important for the government to take initiatives and announce more relief packages for MSMEs and measures.”

Tourism and Hospitality Sector

"The tourism sector was the first to get disrupted by the impact of Covid-19 and will be the last to see a resumption of activities."

The government also knows how bad the sector has been hit and acknowledged the same through a press release. A KMPG report from last month had already predicted the Indian tourism and hospitality sector to lose more than over 3.8 crore jobs. An article on the Economic Times said,

“India’s aviation sector may lose as much as Rs 5 lakh crore along with 4-5 crore job losses”.

As the outlook of the industry is expected to stay under pressure for at least the next few months owing to increased uncertainty, there are many calls for a minimum wage package for affected workers who have been rendered jobless since the lockdown.

Aviation Sector

The aviation industry was one of the first sectors to petition the government for a bailout. As country after country has imposed restrictions on travel in a bid to halt the spread of the virus, airlines have been seeking state aid to avoid going out of business for good. Tim Alderslade, chief executive of Airlines UK, said:

"We are now entering the danger zone, and we urge the government to change tack and start to engage on a sector-wide basis before it's too late."

The crucial aviation sector that connects nations across the world is witnessing a flurry of layoffs and pay cuts. Some workers have been asked to go on forced unpaid leaves by aviation companies, who have been hit equally hard as the tourism and hospitality sector.

CAPA India, a leading travel and tourism consultancy firm, said, “global aviation activity has sunk over 66 percent in the wake of the Covid-19 crisis.”

“From a point of complete suspension of travel, recovery is likely to be slow. Demand will be suppressed due to economic dislocation; slow or even negative GDP growth; broken supply chains; low consumer confidence; and concerns about lingering outbreaks of COVID-19.

Automobile Sector

The automobile sector in India has been forced to stop key manufacturing activity and has led to a sharp drop in production and sales.

With most of the plants shut, big automobile manufacturing companies have announced pay cuts and are waiting for a decision on resumption of dealerships. RC Bhargava, an industry veteran, and Maruti Suzuki Chairman told about,

“ how the automobile sector is interlinked with many other small sectors that manufacture key parts, which are then used for manufacturing vehicle components.”

Therefore, Bhargava like many others from the industry is urging the government to at least open a few dealerships to resume businesses. He also said that a package for the industry, especially for the ones at the bottom of the manufacturing chain, is necessary.

Real Estate Sector

Finally, the real estate sector outlook has also suffered immensely due to the lockdown, which was announced to prevent the spread of the deadly Covid-19 virus. ANAROCK Group in a report last month said,

“housing sales will fall 25-35 per cent while office absorption will fall in the range of 13-30 per cent on a year-on-year basis.”

In the long run, such a reduction in commercial and residential property could reset the future of real estate in India.

This has led to unemployment among millions of migrant labourers in India, who are engaged primarily in construction activities. Hardly anyone of these labourers, who live on daily wage, have additional savings to see off the lockdown period.

The government has urged employers to not cut wages or lay off such labourers, reports suggest that companies are left with no choice but to let their workers go due to cash flow issues.

Road haulage

The road haulage industry, which moves goods from warehouses to shops across the country, is the latest to seek more help from the government. Richard Burnett, chief executive of the Road Haulage Association, said,

“he was hopeful about the prospect of aid. Government are definitely recognizing how critical and how important we are. We are keeping the country fed at the moment."

Andrew Howard, who owns Peterborough-based PC Howard said,

“financial relief can't come soon enough. He said that because non-essential shops had been closed, the firm was moving fewer goods. We are now moving our lorries only partly loaded, typically two-thirds loaded and that means we are losing money every single day, every time we send a vehicle out."

Medical battle against Covid-19

The medicine and healthcare sector is leading the global fight against the virus. For instance, masks, sanitizers, and gloves are high demand and stocks are running out in all parts of the country.

Some firms have seized the opportunity to manufacture such equipment and fill the shortage after government fast-tracked manufacturing permission.

It may be noted that at least 15 firms received permission from the government to produce PPEs or personal protective equipment including Arvind Mills, JCT Mills Phagwara, Amare Safety, Mumbai-based Sure Safety, Delhi-based Sai Synergy, Manchanda, and Shree Healthcare, Chennai.

All of these companies have been given permission by the government to produce surgical gloves, goggles, hand sanitizer, clinical dump bags, blood and fluid spill kits, mask fit test kits, and thermometers.

Sectors Benefitted

However, amidst this entire pandemic, there are few sectors who have been benefitted drastically, and that their profit percentage has gone much higher.

Many firms have gone out of their usual to not only tackle the growing health crisis but also to keep their business afloat . Others like video content service providers are providing a wide array of content to keep viewers engaged during the lockdown.

FMCG shines amid crisis

FMCG sector has become another key economic player during the crisis period as demand for many household goods have jumped tenfolds over the last few days. All companies in the sector including Nestle, HUL, ITC, P&G, Godrej Consumer, Dabur, Amul, and others are set to gain big amid the sudden gush of demand, and panic buying done in the country.

E-commerce and online grocery

The e-commerce and online grocery delivery service like Big Basket and Grofers have also become a key sector in the wake of the novel coronavirus pandemic. These companies have witnessed a mountain of orders over the last few days before facing severe disruption due to the announcement of the lockdown.

Content surge

There has been a sharp spike in online content consumption and internet usage during the first week of the lockdown. Some of the bigger players like Netflix, Amazon Prime and Disney Hotstar are also expected to see a rise in profits during the period.

Telecom

The nation urged its citizens to stay at home and practice social distancing. That aided the telecom sector as Indians consume more data. The growth rate for the first two months of 2020 was the highest in the last 12 months. Mobile data traffic, too, rebounded after declining for 10 straight months.

Healthcare

Healthcare India committed to spend nearly Rs 10,000 crore ($1.3 billion) to encourage companies to manufacture pharmaceutical ingredients domestically after the coronavirus outbreak disrupted supply chains, raised the specter of drug shortages.

Insurance

The Insurance Regulatory Development Authority of India has asked insurers to cover Covid-19 cases in their existing policies as well as ensure that they expeditiously attend to the coronavirus claims. One of the factors that work in its favor is that it’s an under-penetrated sector and hence, the impact will be low.

So what yardstick should the government use when assessing these competing cries for help?

The airline industry particularly had seen a "frightening and spectacular" collapse in demand, but added that people would argue that companies "should have been prepared for at least some kind of downturn".

The government has announced several relief measures for them, but it is hard to ensure whether the benefits are reaching all.

In such a scenario, the government could announce a job security scheme that covers certain employees, similar to what some countries including the UK have done. While there are these above-stated sectors that need urgent help, the outlook of other sectors in India are also deteriorating.