Many economists and other experts have expressed their views about the overall effect of Coronavirus on economy and industry. Most reports seem to be painting a gloomy picture because of this two week lockdown that in all likelihood will be extended by another two weeks. There is no doubt that there will be a dip in all economic indicators. Nobody can argue on that front. Longer the lockdown more will be the time required for economy and industry to bounce back. But it may be incorrect to assume that Indian economy will be in dire straits.
It may be prudent here to understand a few basic truths about Indian economy. Large part of Indian economy is rural based and is hardly affected as of now. The drastic fall in international oil prices augers well for government and will help to keep inflation in check. Nation’s internal consumption will remain buoyant and our huge young population is better placed to see through this Corona pandemic. Interest rates are at all time low which augers well for businesses. Steep fall in stock markets is more because of market sentiment and not due to any such fall in economy in last two weeks. Once things start getting normal, the same markets will bounce back in quick time. On the flip side, new investments may be deferred while some small and micro businesses may have to shut down.
White goods and automobile sectors will certainly see a lower demand going forward that may continue till the year end. Buyers’ priorities will undergo a change and such luxuries will be on the hit list for some time. There will be pain for some export oriented industries as orders may be scarce and delayed by buyers abroad. Construction and real estate sector that was already in trouble will continue to remain depressed with no signs of revival in foreseeable future. Heavy industries sector, comprising of steel, cement and mining, is another area that will possibly be hit in the short-term. Construction activity in private sector will take time to pick up and many government projects may be put on hold because of the heavy non-budgeted expenditure in fighting Coronavirus battle and other relief measures.
The worst hit sectors are aviation, tourism and hospitality where the problem started much before the lockdown. Their demand pick up too will be slower that may extend to over six months, perhaps more. For capital intensive aviation industry, debt servicing and meeting employee wage bill will be the key concerns. The government will certainly need to come to their aid to help them to tide over these difficult times.
Most large and medium sector industries will bounce back quickly once lockdown is lifted. Small and micro sectors where businesses are owner driven will face serious challenges barring a few niche players. Many of these act as suppliers to larger industries and their revival will be dictated by the speed of revival of the large and medium sector. Promoters of such companies may have to infuse more capital to stay afloat to overcome the slack period. A few among them may even shut down in case lock down lasts longer than the expected one month.
The sectors that will be well placed in the coming months are pharmaceuticals, medical, agriculture, internet providers and some on line selling platforms that cater for home essentials, groceries, medicines etc. and do not rely only on limited range of products like clothes or white goods. Indian pharmaceutical sector should see massive expansions with worldwide recognition and acceptance. Government must be proactive in facilitating this. If there is an exodus of Japanese and Western manufacturing industries from China, India must be ready to offer them a viable and attractive alternative. That may well be a game changer for India.
With time businesses will reinvent themselves and find innovative solutions to overcome the problems that they have faced in this period of lockdown. That will result in growth of some more industries and give birth to newer methods of doing business. An example of this may be asking more people to work from home in some industries like call centres, consulting, banking, finance companies and similar businesses where employee work can be monitored remotely. This will result in cost cutting and reduced infrastructure requirement for many.
This may be a good time for the country to look at its basic manufacturing in SME sector that had shrunk because of onslaught of Chinese imports. One important lesson learnt from this lockdown has been about the need for self-sufficiency in daily essentials for the huge Indian population. When a nation finds itself short of simple things like masks, protective clothing, latex gloves and essential medical supplies, it is indeed something to worry about. It is time to leverage the entrepreneurial drive of an average Indian to ensure that the nation does not face a similar situation ever again. The nation must aim at reducing imports of daily essentials from China and instead make them in India. ‘Make in India’ has to extend to ‘sell Indian’ and ‘buy Indian’. It is time Indian store shelves are full of India made products instead of Chinese products finding most of the shelf space.
To achieve the above, government should commission a few fast track pilot projects in SME sector under ‘Make in India’ to encourage new entrepreneurs to manufacture products that are currently imported from China. These pilot project must be given whatever incentives are required and an infrastructure that matches their needs. Supply chain for many industrial segments that include automobiles and white goods has taken a major hit in last three months. Many of these manufactures would have exhausted their inventories already and awaiting supplies from their sources in China or South Korea. Government should encourage greater participation of Indian entrepreneurs in this supply chain management under ‘Make in India’. If FY 20-21 becomes the year of substituting Chinese imports with ‘Make in India’ products, that would be a fitting snub to Coronavirus and the nation that was the root cause for spread of the same.
It is time for India and its financial institutions to encourage and make domestic capital investments attractive instead of looking for foreign capital that invariably demands a lot of concessions. Without a doubt there is a lot of unused capital available within the country. May be there is a need for a radical change in nation’s industrial policies as was done after the 1990-91 fiasco. Finally, please remember world economies, including Indian economy, have fallen before many times and have always managed to come out stronger. There is no reason why that will not happen this time too.