The pandemic has presented fresh challenges for Indian companies, creating a severe disruptive impact on both demand and supply-side elements which has the potential to derail the growth story.
Asian Development Bank (ADB) has said in its FY 2020-21 Outlook on 5th April 2020 that Indian economic growth is likely to slow down to 4% this fiscal on the back of the current global health emergency.
Growth in India will remain subdued after the country suffered a sharp slowdown last year from 6.1% in fiscal 2019 to fiscal 5% as a credit crunch that originated in the NBFC sector severely hampered banks lending.
In the wake of the COVID 19 outbreak over 50% of Indian companies see the impact on their operations and nearly 80% have witnessed a decline in cash flows as per FICCI Survey.
Reduced cash flow is having an impact on all the payments including those for employees, interest, loan repayments, and taxes. The survey showed that more than 60% of respondents have seen an impact on their supply chain and expect the situation to worsen further.
At least 40% of the Indian companies have put in place stringent checks on people entering their offices and disinfection while nearly 30% have already put in place work-from-home policies for their employees. National Lockdown is in place since 25th March and is expected to remain till 14th April 2020.
The economic package announced by the Central Government may accord a momentary glimmer of light at the end of the tunnel. But industry leaders know that once the storm is over, it will be a hard road to recovery and it will take far more than building greater competencies in domain on technical skills to get the job done.
Impact of Social Distancing
The need for social distancing has brought down all manufacturing and service industries. Both demand and supply have been affected. It has also increased fear of loss of jobs and income. Work from home has provided a certain degree of business continuity for some companies where WFH is possible.
Lockdown has disrupted supply lines in the country at interstate checkpoints where road transport is held up.
Looking Into Future
21 days lockdown is a first step which buys India time to improve its preparedness. Country will have to significantly increase the number of COVID 19 tests to reduce the fog of uncertainty as regards where hotspots are.
India would now plan for what happens after the lockdown if the virus is not defeated. It will have to restart certain activities in certain low infection regions with adequate precautions.
India will have to ensure that in the meantime poor and non-salaried lower middle class who are prevented from working for longer periods can survive. Direct transfer to households may reach most, but not all, and the quantum of transfer seems inadequate to see a household through a month.
Analysis
Almost all sections of India's business have been disrupted by COVID 19. If the lockdown is extended after 14 April and partial restart of economic activity is permitted in less affected areas it will send a positive signal for both demand and supply.
If India can contain the impact of COVID 19 it may be possible to restart economic recovery from June-July 2020. Hopefully, Indian businesses can look at recovery with effect from October 2020 and business as usual by 4th quarter of this fiscal.
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By: Brig. R. K. Sharma