How are businesses holding up amidst COVID-19 mayhem?

How are businesses holding up amidst COVID-19 mayhem?

Representative image. (Credit: AFP Photo)

With COVID-19 emerging as a global pandemic, leaving its impact in more than 180 countries across the planet, the implications of its spread have become more serious than envisaged a month ago. The global economy is in a state of mayhem as there are no signs of the chaos subsiding any time soon. Closer home in India, the situation, especially on the economic front, seems grim. 

A survey by industry body FICCI states that a significant 53% of Indian businesses indicate a marked impact of the pandemic on their operations even at early stages. The pandemic has significantly impacted the cash flow at organisations with almost 80% reporting a decrease. There was a strong hope of recovery from the persisting economic slowdown in the last quarter of the current fiscal. However, the pandemic has made the recovery extremely difficult in the near to medium term.

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On the other hand, the outbreak has presented fresh challenges for the Indian economy now, with its disruptive impact on both demand and supply side elements holding the potential to derail India’s growth story. Another report by rating agency Crisil indicates that the credit quality pressure on India Inc, which has been rising because of economic slowdown and consumption slump, is set to intensify. The impact, however, varies across sectors, depending on the extent of operational disruption due to social distancing and the overall economic sentiment. According to ADB (Asian Development Bank) estimates, the COVID-19 outbreak could cost the Indian economy between $387 million and $29.9 billion in personal consumption losses. 

To understand what businesses in the country have encountered and how they are braving the wrath of Covid-19 so far, we look at the different sectors that stand the most affected by the crisis.

Aviation

Aviation has turned out to be the worst affected sector amidst the Covid-19 pandemic. According to the International Air Transport Association, airlines globally can lose in passenger revenues of up to a whopping $113 billion. Airfares have also come under pressure due to nearly 30% drop in bookings to virus affected destinations. As a result, airfares to these destinations have fallen by 20-30%, a FICCI industry report states.

Also Read: Coronavirus India update: State-wise total number of confirmed cases

According to the report, domestic traffic growth is also gradually being impacted by domestic travellers postponing or cancelling their travel plans. Some Airline companies have reported more than 30% drop in domestic travel this summer compared with last year. Airfares in the popular domestic routes have been reduced by 20-25% and are expected to remain subdued in summer as well. 

According to the data available with the Ministry of Civil Aviation, nearly 585 international flights have been cancelled to-and-from India between February 1 and March 6 because of the outbreak of coronavirus. Cash reserves of airline companies are running low and many are almost at the brink of bankruptcy. Job losses and pay cuts remain a worrying issue, as some airlines have already asked many of their staff/employees to go on leave without pay.

Tourism

As the uncertainty has led to the cancellation of travel plans by both foreign and domestic tourists, there has been a drop in both inbound and outbound tourism of about 67% and 52% respectively since January to February as compared to the same period last year. The report suggests that of all the segments of the hospitality sector, the Meetings, Incentives, Conferences and Exhibitions — popularly known as MICE segment — has been worst hit.

According to the report, usually, the number of Indian travellers to both domestic and international destinations peak during the months of March and April. However, this time nearly 90% bookings of hotel and flights bookings stand cancelled. According to the Indian Association of Tour Operators (IATO), the hotel, aviation and travel sector together may incur a loss of about Rs 8,500 crore due to travel restrictions imposed on foreign tourists by India for a month.

Agriculture

The poultry sector, the fastest growing sub-sector of agriculture eco-system is already facing losses to the tune of Rs 150 crore to Rs 200 crore everyday. This is mostly on account of the spread of misinformation on social media, correlating Covid-19 spread to the consumption of meat and poultry products. This has meant that demand for poultry products has fallen and prices have crashed to as low as Rs 10-15 per kg, even as production cost stands at Rs 70-80 per kg.

Entertainment/Sports

Multiple cities and states have imposed shutdowns of cinema theatres, shopping malls and gyms till March 31, 2020, to stop the spread of the virus. While the exact loss is difficult to calculate presently, some estimates suggest that theatres in Delhi alone may have to incur a loss of Rs 2 lakh to Rs 10 lakh within a period of 10 days. There has also been a massive impact on the television and film industry owing to the cancellation of shootings and promotional events. 

Several sport events have been either postponed or cancelled, and this brings huge losses for the sports industry.

For instance, cancellation of IPL matches alone could mean a loss of Rs 10,000 crore for the industry, says the report.  A report by global advisory firm Duff & Phelps states, the IPL was valued at $6.8 billion in 2019 and could see an erosion of $200-350 million if the BCCI goes in for a truncated tourney with empty galleries and $700-1,000 million if the season is cancelled.

The agency has arrived at the numbers based on an assessment of a truncated tourney with matches being played to empty galleries or no revenue from the gate sales and a washout of the 2020 season. 

Automobile

China accounts for 27% of India’s automotive parts imports and major global auto part makers such as Robert Bosch GmbH, Valeo AS and ZF Friedrichshafen AG have factories located in the Hubei province. Owing to the closure of the factories of these companies, there has been a delay in the production and delivery of vehicles like Bharat Stage Four (BS-IV) compliant models. 

Moreover, the situation has become more precarious after the decision of the Chinese government to limit all shipments by sea until further notice. Since air shipments are not suitable for auto components and forging industries, Indian OEMs are finding it difficult to plan production beyond the available inventory.

There are signs that COVID-19 is also likely to make the transition to Bharat Stage Six (BS-VI) emission norms, scheduled on April 1 difficult. 

Pharma

Amidst the uncertainty over the future supply of bulk drugs and intermediaries from China, the possibility of a shortage in the availability of medicines in India has led to an increase in prices of some items like paracetamol, which has seen a price hike of about 40%. According to the report, It has put negative pressure on some raw material items such as Penicillin G, a key raw material used in antibiotics, the price of which has reportedly gone up by about 58%.

The drug regulatory authority has said that the stock of 57 APIs (amoxicillin, ofloxacin, vitamin tablets and capsules such as B12, B1, B6) could soon run out. The government has restricted exports of certain medicines to deal with the situation. 

Power

The latest data for the first two weeks of March 2020 has already reported a negative growth (-3.6%) in power consumption. The consumption had noted a 10.8% growth during the month of February 2020. Press reports also indicate that power demand was growing favourably in the first week of March but has been contracting ever since. The decline is a result of the measures being undertaken across the country to contain the spread through the closure of malls, cinemas, etc.

International Trade

China has been a major market for many Indian products like seafood, petrochemicals, gems and jewellery etc. The outbreak of coronavirus has adversely impacted exports of these items to China. For instance, the fisheries sector is anticipated to incur a loss of more than Rs 1,300 crore due to fall in exports. Similarly, India exports 36% of its diamonds to China.

The cancellation of four major trade events between February and April is likely to cause an estimated loss of Rs 8,000-10,000 crore in terms of business opportunity for Jaipur alone.
India also exports 34% of its petrochemicals to China. Due to export restrictions to China, petrochemical products are expected to see a price reduction.

The market sentiment, with a sharp fall in equity indices and bond yields, gives the idea that the Covid-19 impact on the economy may persist for long.

It is difficult to predict how hard would be the recovery while we are still in the middle of the adversity, with little idea of the way out.

A combination of monetary, fiscal and financial market measures is needed to help the businesses and people cope with the crisis.

(With inputs from Mahesh Kulkarni)

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