As India goes through the throes of the coronavirus lockdown, with millions cooped up indoors and worries over community transmission and availability of essential commodities persisting, looming large in the horizon is a pestilence equally deadly. An economic crash-boom-bang.
Even the best-case scenario warns India’s growth rate will get a rude jolt from the pandemic—a finance ministry estimate calculated that India’s GDP growth, already at its lowest level in seven years at 4.7 per cent (September-December quarter), could drop by one per cent at least. That is mighty conservative, considering that Moody’s and Barclay’s have both said India’s growth in the upcoming financial year (2020-21) could fall as low as 2.5 per cent.
India’s authorities, sorely aware of the chinks in its health network and how it does not stand a chance in the face of a full-scale outbreak like in Italy, hope the national lockdown will work out. That a 21-day cessation of all activities, with 1.3 billion people cooped up within their homes, will be enough to ‘break the chain’. But the collateral damage to India’s economy is unfortunately sure to outlast the 21 days as millions stare at unemployment and the already slow economy takes another bodyblow.
If you exclude the first three coronavirus positive cases in India—all students from Wuhan who had returned to Kerala in end-January and thankfully were cured soon enough—India’s tryst with COVID-19 outbreak technically began only in March. This stage-2 transmission of disease manifesting or spreading through travellers returning from countries with high incidents soon ballooned enough to warrant national panic, work-from-home, flight cancellations and the Janta Curfew, all eventually leading to the ongoing national lockdown.
And through it all, a financial disaster unfolded in slow-motion.
Late February: When it all began
For Indian businesses already labouring under the double whammy of cash crunch as well as consumption drop, the coronavirus scare comes as an added woe. Even before non-Kashmiri Indians get familiar with the word ‘lockdown’, it is the initial shutdown in China that is impacting Indian industry.
Beside the obvious finished items imported from mainland China, the challenge primarily comes from the sudden drop in supply of raw materials and components from the ‘factory to the world’. This is more acutely felt in areas like electronics hardware, pharmaceuticals, fertilisers, etc. “We are looking at at least a 10-week outage,” George Paul, CEO of the electronics and hardware industry body Manufacturers Association of Information Technology (MAIT) said. “That's 20 per cent of the year gone!”
Components from China may form only 30 to 35 per cent of a hardware product made in India, but with electronics assembling being what it is, dearth of even one item can hold up the entire assembly line. B. Thiagarajan, managing director of Bluestar, a leading air-conditioner manufacturer, admits to THE WEEK in an exclusive interview that dearth of raw materials would mean he would not be able to capitalise on the peak summer season for ACs, which is the next three months. “In the last week of February, incoming (components being imported from China) was 70 per cent”, he points out. This would drop to 50 per cent in just a fortnight and 30 per cent by last week of March, primarily due to the shutdown across China’s industrial belt in the south, and stopping of cargo ships.
Thiagarajan adds, “There is nothing that can be done now. The only thing left to see is whether the shortfall will be 5 per cent or as high as 25 per cent.” On hindsight now, those are probably very, very conservative estimates.
The scenario is replicated in sectors as varied as chemicals, textiles, solar power, auto components and pharmaceuticals. “Our hands are really tied, especially where there is a special ore or mineral involved which is only available in China,” says Kushal Suri, head of International Business Development at Morepen Laboratories.
As per a CII analysis, China supplies 43 per cent of India's imports of its top 20 goods, including $7.2 billion worth mobile handsets and electronic parts worth $7.5 billion. “We will be seeing, if not already happening, job losses, of plants coming down from two shifts to one. And once the stocks dry up, we will see plants shut down,” says a worried Paul of MAIT.
Early March: Holi Hai!
While alarm bells are ringing in business circles, for the oblivious rest of the country, it is party time. Holi, the festival of colours is quite the highlight of North India’s spring social calendar. The chilly days are behind, weather is at its salubrious best, with flowers blooming all around. It’s the one day of the year, beside New Year Eve, when intoxicants are socially and religiously not frowned upon, and people come out in galis and mohallas in a fervour almost akin to Mardi Gras.
Most Indians still haven’t let the coronavirus scare get to them—the national capital has just recorded its first case, and numbers are spiralling in the south and west of the country. However, these are all people who had travelled abroad, so most people are not too worried, despite all the advisories to avoid close contact and avoid attending communal festivities. The celebrations go ahead, though shopping places start seeing a marked dip in crowds.
Harneet Singh Ajmani, a salsa dancer, notices it right away. On a regular day, Ajmani's hands used to be full, running his electronics store in South Delhi by day and following his passion at his salsa dance class in the afterhours. But suddenly, it was twiddling of thumbs, not tango or twist, that he seemed to be doing more.
“Business anyway was grim due to the overall economic slowdown, but the coronavirus scare has brought it to its knees,” he says.
While his dance school has shut down, Ajmani is bracing for worse on the business front. “Some companies are already telling us they don't have stocks anymore, while distributors have told us to stock up if we want, because they cannot guarantee fresh supplies in the coming weeks.” Goods manufactured in China or requiring parts from the mainland could soon disappear from the shelves–LED TVs, mobile phones and air-conditioners just some of them. “Prices have already increased,” he points out. “Not that there are too many coming to buy, though.”
While India is still complacent enough, globally, alarm bells are ringing on the economic front.
“A global recession is now all but certain,” Dutch multinational financial company Rabobank declares on the eve of Holi. Recession seems inevitable for many countries, the only question being how bad it will affect the two biggest economies of the US and China, and what the ripple effect would be. And yes, how long (or hopefully short) it will last.
On March 10, the United Nations Conference on Trade and Development (UNCTAD) says global growth, already low at 2.9 per cent, could drop below 2 per cent this year in the aftermath of the outbreak. The global body of banks, the Washington DC-headquartered Institute for International Finance, estimates it even lower, at just one per cent.
March second week: Warning bells
It’s a few days after Holi, and Indians are no longer as festive. The number of cases are rising and it is by now clear that Indian economy should brace for the aftermath.
Reserve Bank governor Shaktikanta Das keeps a brave front on March 16, a week after Holi, declaring that “impact on India will be less”, but for the nation, the COVID-19 outbreak could not have come at a worse time. With no turnaround visible to the economic downturn, despite measures over the last few months like corporate tax cut and stimulus packages, the coronavirus factor is set to ensure that turbulent days are ahead. “Hopes of a rebound (are) dim as the outbreak poses new and significant supply and demand-side risks,” warns Rumki Majumdar, economist with the consultancy firm Deloitte.
Mid-March: The Domino effect
It is not just supply of raw materials that is making Indian businesses feel the burn now. Lockdown in crucial foreign markets is having a domino impact on businesses nearer home. For example, auction prices of Indian tea crashes 40 per cent. The reason? Major tea consuming nations Iran and China are also the worst-affected by COVID-19 and hence, did not bid this time.
The export of rice to Iran has stopped–last year, India exported 14 lakh tonnes of rice to Iran. Meat exports have fallen 15 per cent (for all its beef ban politics and cow vigilante mobs, India is one of the biggest exporters of meat in the world), while the poultry industry is facing a crisis due to domestic consumers shunning chicken over fears that eating it would cause COVID-19. No amount of advisories by the Animal Husbandry department has been able to prevent chicken prices crashing by more than half. “I've stopped eating chicken,” said Aman Chaubey, an ad industry professional who works in Gurugram. “My family has told me to avoid all outside food, including snacks served in the office.”
The grass is not greener on the other side as well. Global Indian companies could end up badly ravaged once all of this is through. Conglomerates like Tata, which depend on overseas business for a large chunk of its revenues, would be badly affected. For example, European markets account for 40 per cent of its subsidiary JLR's revenue. Many others like Mahindra would also be affected, the extent of which would be known only in the coming months.
On the retail side, it is a steadily spreading blood bath. Many states start imposing various levels of lockdown, leading to closing down of cinemas, shopping malls, spas and gyms. “Walk-ins at malls and stores have seen a hit of at least 25 per cent,” says Harkirat Singh, managing director of Aero Club, the company that makes Woodland shoes. “The impact is bound to continue until the situation improves.”
“All sales have dropped,” points out S. Ravi, an economist and former chairman of the Bombay Stock Exchange, adding, “(Many) airlines have already laid off employees or have told them to take compulsory leave without pay.” When IndiGo announces pay cuts for all employees and GoAir sacks expat pilots, it is news. But soon, what is ‘news’ becomes commonplace, as companies start laying off and suspending operations--employees are told to sit at home without pay in many cases, or with pay cuts in other cases. This, despite the prime minister coming on national television and pleading with employers to not cut salaries.
The travel and tourism industry is the first frontline casualty, with visa, flight and room cancellations all around. Indigo, India's largest airline, has seen 15-20 per cent decline in its daily bookings. “The numbers could change... based on how the situation evolves,” according to an Indigo statement. “We expect our quarterly earnings to be materially impacted.”
One simple figure demonstrates the massive hit the travel industry is taking as flights get cancelled across the globe--in February, IATA estimates the cumulative loss to global aviation at $30 billion. By early March, the figure was hiked to $113 billion, and is likely to be further revised to $250 billion by last week of March.
Apoorva Batra, managing director of SimplyGo Travels as well as Red Letter, a wedding planning & decor firm, explains: “Our travel bookings and forex sales have been drastically affected--70 to 80 per cent drop in the past one month.” While weddings, which are planned way in advance, have not been affected yet, she is keeping her fingers crossed. “Destination weddings are being cancelled, while local functions are seeing fewer guests--just friends and relatives.” Neil Kapoor, who runs the boutique hotel The Manor in Delhi, says business is down 80 per cent. “We are (only) remaining open so that guests already booked are not further inconvenienced.”
Late March: The virus hits the roof
As cases continue to rise in India, corporates across India start implementing work-from-home (WFH), while those in essential services start splitting up work force into two batches who have to alternate coming to work, to ensure no disruptions. However, this is cold comfort to factories and production facilities. Real estate, construction and the auto industry bear the brunt.
With the RBI governor warning that “a second round of the pandemic could (cause) a slowdown in domestic economic growth, action is initiated at the highest levels of the government. PM Modi asks NITI Aayog, his Economic Advisory Council as well as the finance ministry to assess the impact.
Then, the unimaginable happens--a nationwide lockdown. Testing a ‘Janta Curfew’ on March 22, PM Modi goes ahead with a three-week lockdown starting March 25. “If we don’t implement this 21-day lockdown, India’s growth could be set back 21 years,” Modi warns in his address to the nation. Businesses can only brace for future impact. “We have been immobilised literally,” exclaims Shoba Mohan, founder of RARE India, a sub-continental hotel chain. “There is really not much hope in sight. The charts are literally wiped clean.”
Silver linings playbook
There could be a silver lining to all the gloom, though. Just as the supply-chain from China got disrupted in February, CII had suggested in a report to commerce and industry minister Piyush Goyal on how Indian industry can take advantage of the trade shutdown in China. Suggestions include identifying other countries that can substitute for imports of key products from China, as well as positioning India in other markets as an alternative to China.
Maybe it is working. “India has become a preferred supplier of APIs (formulations that go into making drugs which was earlier almost solely brought by India and most of the world only from China) and API Intermediates for global markets as compared to China (after that country's shutdown),” says Suri of pharma major Morepen. “In the long run this will have a great positive impact on the overall Indian economy.”
Then, there is of course, the makers of masks and sanitisers, who've been laughing all the way to the bank. “Market requirement of masks has crossed the 500 per cent mark,” points out Sandip Chetrri, COO of TradeIndia.com, an e-commerce marketplace. Vikas Bagaria, founder of Pee Safe, a brand that makes toilet seat sanitisers and dust masks has seen business booming in the past few days. “No one saw this coming,” he says, “My employees are working in 3 shifts (to fulfill the demand)” Even major liquor manufacturers get into the act, with companies like Diageo (which runs India’s biggest alcohol maker United Spirits) diverting their ethanol stock into making hand sanitisers.
With many Chinese companies re-opening and exports starting up, Indian businesses are hoping that it will be back to 'business as usual' by April-end or so. “Chinese factories are re-opening,” points out Thiagarajan of Bluestar,”Hopefully by April-end, things should get normal.” Adds Majumdar of Deloitte, “(With) production in China reviving back, the uncertainty associated with the longevity of supply disruptions reduces.”
The government, too, has come out with all guns blazing. On March 27, a day after Finance minister Nirmala Sitharaman announced a Rs 1.70 lakh crore stimulus package, the Reserve Bank came up with a cut in interest rates and several other measures which it hopes will soften the economic blow of the 21-day lockdown. While Sitharaman’s first round focussed on the general public, another round of measures, this time to help small businesses and the industry, are expected in the coming days. The recent global tumble of oil prices could also help India. "Lower oil prices could be a boon for India, as costs of production and transport fall, easing inflation," hopes Deloitte's Majumdar.
Sociologists are also predicting that once the lockdown gets over and fear of infection subsides, there could be a retail consumer boom, as citizens go out shopping, eating at restaurants, watching films and travelling on vacations --all the regular things the virus has stopped us from enjoying. In its excesses could well lie the recipe to an economic revival, too. Hope surely floats.