Economic Impact of COVID-19: A case study.

Corona virus is a family of viruses that cause illness such as respiratory diseases or gastrointestinal diseases. A novel coronavirus (nCoV) is a new strain that has not been identified in humans previously. On 31 December 2019, a cluster of cases of pneumonia of unknown cause, in the city of Wuhan, Hubei province in China, was reported to the World Health Organisation. This novel coronavirus was named Coronavirus Disease 2019 (COVID-19) by WHO in February 2020. The virus is referred to as SARS-CoV-2 and the associated disease is COVID-19. On 30 January, India reported its first case of COVID-19 in Kerala, which rose to three cases by 3 February; all were students who had returned from Wuhan, China. No significant rise in cases was seen in the rest of February. On 4 March 22 new cases came to light, including those of an Italian tourist group with 14 infected members.

To combat with COVID-19, Indian Government extended the date of lockdown to 3rd May, 2020.Recently an industry survey that is jointly conducted by industry body FICCI and tax consultancy Dhruva advisors and took responses from about 380 companies across the sectors. It is said that businesses are grappling with “tremendous uncertainty” about their future. According to Dun & Bradstreet, COVID-19 no doubt disrupted human lives and global supply chain but the pandemic is a severe demand shock which has offset the green shoots of recovery of the Indian economy that was visible towards the end of 2019 and early 2020. The revised Gross Domestic Product (GDP) estimates for India downwards by 0.2 percentage points for the fiscal year 2020 to 4.8 per cent and by 0.5 per cent for the fiscal year 2021 to 6 per cent. Further, it is stated that the extent of the actual impact will depend upon the severity and duration of the outbreak.

There are three major channels of impact for Indian businesses according to the report namely linkages, supply chain and macroeconomic factors. The data of the Dun & Bradstreet shows that at least 6,606 Indian entities have legal linkages with companies in countries with a large number of confirmed COVID-19 cases. And business activity in the foreign markets is slow which implies a negative impact on the top line of these companies. Sectors that would be much affected include logistics, auto, tourism, metals, drugs, pharmaceuticals, electronic goods, MSMEs and retail among others.
KPMG India Chairman and CEO Arun M Kumar said: “Apart from providing robust safety nets for the vulnerable, a focus on ensuring job continuity and job creation will be imperative”. “And there is urgent need to mobilise resources to stimulate the economy for increased demand and employment”.
According to the KPMG report “It is expected that the course of economic recovery in India will be smoother and faster than that of many other advanced countries”.
Impact on Indian industry:

Chemical Industry:
Some chemical plants have been shut down in China. So there will be restrictions on shipments/logistics. It was found that 20% of the production has been impacted due to the disruption in raw material supply. China is a major supplier of Indigo that is required for denim. Business in India is likely to get affected so people securing their supplies. However, it is an opportunity. US and EU will try and diversify their markets. Some of the business can be diverted to India which can also be taken as an advantage.

Shipping Industry:
Coronavirus outbreak has impacted the business of cargo movement service providers. As per the sources, per day per vessel has declined by more than 75-80% in dry bulk trade.

Auto Industry:
Its impact on Indian companies will vary and depend upon the extent of the business with China. China’s business no doubt is affected. However, current levels of the inventory seem to be sufficient for the Indian industry. If the shutdown in China continues then it is expected to result in an 8-10% contraction of Indian auto manufacturing in 2020.

Pharmaceuticals Industry:
Despite being one of the top formulations of drug exporters in the world, the pharma industry of India relies heavily on import as of bulk drugs. Due to the coronavirus outbreak, it will also be impacted.

Textiles Industry:
Due to coronavirus outbreak, several garments/textile factories in China have halted operations that in turn affecting the exports of fabric, yarn and other raw materials from India.

Solar Power Sector:
Indian developers may face some shortfall of raw materials needed in solar panels/cells and limited stocks from China.

Electronics Industry:
The major supplier is China in electronics being a final product or raw material used in the electronic industry. India’s electronic industry may face supply disruptions, production, reduction impact on product prices due to heavy dependence on electronics component supply directly or indirectly and local manufacturing.

IT Industry:
The New Year holidays in China has been extended due to coronavirus outbreak that adversely impacted the revenue and growth of Indian IT companies.

Tourism and Aviation:
Due to the coronavirus outbreak, the inflow of tourists from China and from other East Asian regions to India will lose that will impact the tourism sector and revenue.

RBI announced further measures for dealing with the COVID-19.

  1. Extension of realisation period of export proceeds
    Presently value of the goods or software exports made by the exporters is required to be realized fully and repatriated to the country within a period of 9 months from the date of exports. In view of the disruption caused by the COVID-19 pandemic, the time period for realization and repatriation of export proceeds for exports made up to or on July 31, 2020, has been extended to 15 months from the date of export. The measure will enable the exporters to realise their receipts, especially from COVID-19 affected countries within the extended period and also provide greater flexibility to the exporters to negotiate future export contracts with buyers abroad.
  2. Review of Limits of Way and Means Advances of States/UTs
    Reserve Bank had constituted an Advisory Committee (Chairman: Shri Sudhir Shrivastava) to review the Ways and Means limits for State Governments and Union Territories (UTs). Pending submission of the final recommendations by the Committee, it has been decided to increase WMA limit by 30 percent from the existing limit for all States/UTs to enable the State Governments to tide over the situation arising from the outbreak of the COVID-19 pandemic. The revised limits will come into force with effect from April 1, 2020 and will be valid till September 30, 2020.
  3. Implementation of countercyclical capital buffer
    The framework on countercyclical capital buffer (CCyB) was put in place by the Reserve Bank in terms of guidelines issues on 5th February 2015. Wherein it was advised that the CCyB would be activated as and when the circumstances warranted, and that the decision would normally be pre-announced. The framework envisages the credit-to-GDP gap as the main indicator, which is used in conjunction with other supplementary indicators. Based on the review and empirical analysis of CCyB indicators, it has been decided that it is not necessary to activate CCyB for a period of one year or earlier, as may be necessary.
    FDI policies changes due to Covid-19:
    On 18 April 2020, the government of India passed an order that would protect Indian companies from FDI during the pandemic. All countries sharing a land border with India would now face scrutiny from the Ministry of Commerce and Industry before any FDIs.

• Infrastructure
10% of India’s GDP is based on construction activity. Indian government has invested $1 trillion on infrastructure from 2012–2017. 40% of this $1 trillion had to be funded by private sector. 100% FDI under automatic route is permitted in construction sector for cities and townships.
• Automotive
FDI in automotive sector was increased by 89% from April 2014 to February 2015. India is 7th largest producer of vehicles in the world with 25.5 million vehicles annually. 100% FDI is permitted in this sector via automatic route. Automobiles shares 7% of the India’s GDP.
• Pharmaceuticals
Indian pharmaceutical market is 3rd largest in terms of volume and 13th largest in terms of value. Indian pharmacy industry is expected to grow at 20% compound annual growth rate from 2015 to 2020. 74% FDI is permitted in this sector.
• Service
FDI in service sector was increased to 46% in 2014–15. It is US $1.88 billion in 2017. Service sector includes banking, insurance, outsourcing, research & development, courier and technology testing. FDI limit in insurance sector was raised from 26% to 49% in 2014.[
• Railways
100% FDI is allowed under automatic route in most of areas of railway, other than the operations, like High speed train, railway electrification, passenger terminal, and mass rapid transport systems etc. Mumbai-Ahemdabad high speed corridor project is single largest railway project in India, other being CSTM-Panvel suburban corridor. Foreign investment more than ₹90,000 crore (US$13 billion) is expected in these projects so far.
• Chemicals
Chemical industry of India earned revenue of $155–160 billion in 2013. 100% FDI is allowed in Chemical sector under automatic route. Except Hydrocyanic acid, Phosgene, Isocyanides and their derivatives, production of all other chemicals is de-licensed in India India’s share in global specialty chemical industry is expected to rise from 2.8% in 2013 to 6–7% in 2023
• Textile
Textile is one major contributor to India’s export. Nearly 11% of India’s total export is textile. This sector has attracted about $1647 million from April 2000 to May 2015. 100% FDI is allowed under automatic route. During year 2013–14, FDI in textile sector was increased by 91%. Indian textile industry is expected reach up to $141 billion till 2021.

• Airlines
Foreigner investment in a scheduled or regional air transport service or domestic scheduled passenger airline is permitted to 100%.

CII sets up relief pool funds to help MSMEs, society.
Apex industry body Confederation of Indian Industries (CII) on Monday said it has set up CII COVID-19 CODE and CII COVID – 19 rehabilitation and relief pool fund to help micro, small and medium enterprises (MSME) and society from the impact of disruptions caused by coronavirus.CII has developed and advocated a COVID-19 CODE to its members to help its workers and society at large from the impact of disruptions caused by COVID-19, said Vikram Kirloskar, President, CII. Uday kotak, the President-Designate of CII, said the COVID Rehabilitation Fund is important for the micro and small industry, which will need special hand holding and help to rehabilitate their business. “The CII COVID Rehabilitation and Relief Fund (CRR) will be an industry led initiative to work with the MSME sector,” Kotak said. Elaborating on some of the major interventions required from RBI, Kotak said that it is important that a rate cut of 50 to 100 basis points is announced immediately. He also called for dollar liquidity swap as India was in a comfortable position as far as its dollar reserves are concerned. CII has called for cash into the bank accounts of all whose earnings are below Rs 5 lakhs. All Indian citizens should be given cash in their accounts through the direct benefit transfer; while those below 25 years can be given a one-time payment of Rs 5000, senior citizens above 65 age can be given Rs 10,000, CII has said.
According to CII, there is a need to ensure that all migrant workers continue to stay in the cities where they work and so providing for enablers is crucial. All borrowers should be given a three-month moratorium on all loans and all repayment obligations should be suspended for this period, it said. CII also emphasised that there is an immediate need to facilitate and enable advances for ways and means for industry across sectors and the government could perhaps explore options of a moratorium on interest and principle for the next three months. It also pitched for suspension of Insolvency and Bankruptcy Code (IBC) proceedings while redefining norms for NPAs as several companies will be unable to meet their payment obligations. The CII also recommended for close coordination between regulators like RBI, MCA and SEBI to get effective results and implementation.
An outbreak of COVID-19 impacted the whole world and has been felt across industries. The outbreak is declared as a national emergency by the World Health Organisation. In India the three major contributors to GDP namely private consumption, investment and external trade will all get affected. World and Indian economy are attempting to mitigate the health risks of COVID-19 with the economic risks and necessary measures necessary will be taken to improve it.

Categories: News