As we watch Global ques on Covid-19 affected countries, India stands apart in many ways. God has been kind so far as there have not been many casualties, considering the size and density of population of India.
Lockdown was a necessary step taken by Indian Govt. but it has its long-term economic consequences, which cannot be avoided.
The Corona scare is going to affect a number of sectors for a long time, not because of lack of activity or demand, but because of sheer behavioural changes.
In the coming days we will see how our Govt tackles this situation by involving all the States, truly following the principle of cooperative federalism.
Dear friends,
As I write, the total number of confirmed cases and deaths related to Corona virus in India stand at 7447 and 239 respectively, as compared to global numbers of 16.99 Lakh cases and 1,02,774 deaths. In Indian context, these numbers are miniscule considering the size of the country and population-density. It is estimated that about 40% of the Indian population is already infected with TB bacteria, the vast majority of whom have latent TB rather than TB disease. Worldwide some 30 million people have died due to TB alone since 1993. This is when TB is treated as a curable disease. A large number of people die in India due various other viral and parasitical diseases.
The scare of COVID-19 is such that it has shaken the entire World and it is going to make several behavioural changes amongst people. For example, people may avoid public meetings and gathering for a long time. People would avoid taking public transport. People will be scared even if they are suffering from normal flu. The scare is such that even if one person is found affected by CORONA VIRUS, the entire apartment or colony gets quarantined/sealed. I feel that WHO and other Local Health Organisations should be cautious in their choice of words and should try to educate the people and not scare the people. Viruses are not new to this World and this could be a different one.
Though we all have to change our lifestyle in coming days, it is equally important that a lockdown is only a temporary solution and it comes at big cost. If I talk in Indian perspective, a lockdown of 21 days means a GDP-Loss of 12.77 Lakh Crores (considering that we a $3 Trillion economy)
The Worst affected Sectors
Though Covid-19 is likely to impact almost every sector negatively due to interlinked economy, the worst affected sectors would be the following:
- Agricultural Sector is badly affected as the Rabi Crop is ready to be harvested and not enough labourers are available to do the job. The Mandis are closed and transport not available.
- Aviation Sector : Recently, British Airways announced suspension of 30,000 employees and several Indian Aviation companies have also cut salaries.
- Hospitality Sector would be badly impacted for at least next one year.
- Travel & Tourism could be negatively impacted as people will restrict movement for some time and until this Corona-Scare remains.
- Event Management companies will suffer as people will avoid large gathering.
- Luxury Goods : Gold & Diamond Jewellery, Art effects & Clothing
- Food aggregators and restaurants, as people would avoid outside food
- Auto & Auto-Ancillaries: There would be lesser demand for Luxury segment
- Insurance sector would be negatively impacted with large number of claims and litigations.
- Entire MSME sector was already under pressure due to financial crises, low demand and overall slow-down.
Sectors like Pharma, Health & Hygiene, FMCG, IT and Education are not likely to be impacted.
Govt. Intervention and Fiscal Measures
Steps taken by Govt so far are too small and much more needs to be done. Besides improving the health infrastructure, the Govt has to address major crisis due to declining business sentiments, loss of demand, financial stress, supply chain disruption and the most important being large scale unemployment.
Recently, the Govt has taken following measures, which are good but may not be sufficient:
- Deferment of Installments and Interest on Term Loans and CC Limits. However, this is of no help as interest will keep piling at compounding rate.
- Laxity in payment of Taxes. This again is not of much help as the Govt. still wants to charge Interest on delayed payment at lower rate of 9%.
- Direct Benefit Transfer of INR 1.75 Lakh Crore to be given to 80 Crore poorest Indians over three months.
- Marginal increase in social Benefit Schemes like Old age Pension, MGNREGS, Ayushman Bharat, Mohalla Clinics, etc which were already part of Budget 2020.
- Additional distribution and free distribution of ration through PDS.
- Reduction in policy rates and putting more money in the hands of bankers.
What more needs to be done
Due to sudden lockdown, the entire business cycle has got disrupted. The worst affected are small and medium businesses, who were already expecting some relief due to economic slowdown in India.
COVID-19 has already posed a great challenge to the healthcare system of the Country. India’s allocation towards Health in Budget-2020 stands at Rs. 67,484 crores (or say $ 9 billion) for a population of 1.34 billion, which is just ONE Percent of the GDP. As against this USA spent $ 3.6 Trillion in 2019, which accounts for 18% of GDP on a population of 330 million. Indian Govt. should also think in that line and raise its healthcare budget.
MSME sector is the backbone of our country and it is suffering for quite some time now. Govt must come out with a long-term plan for this sector which includes easy availability of finances, moratorium for existing loans, relaxation in interest rate during moratorium period, power subsidy and tax benefits. Unless special focus is given, this sector will take a long time to rise and come to the main stream of economic development. This sector generates maximum employment and hence cannot be ignored.
There is little or no reprieve for urban poor and unemployed youths, who stand nowhere when it comes to financial support from Govt. Large number of skilled and qualified youths has no jobs and already feeling frustrated. This large force of under 30 yrs must be channelized into productive sectors, otherwise this anger can come on streets anytime. The existing rate of unemployment in India stands at 9% and this number is likely to double after Corona-Pandemic. It is the need of hour that entrepreneurial skills be developed in youth. Main focus should be to start own venture rather than looking for jobs. All types of Start-ups should be given tax incentives and not just a few selected ones.
I would like to conclude my thoughts with the hope that we will overcome this crisis soon and our economy will be back on the path of development. India has huge potential, consumer demand and resources. Since we are not an export-oriented economy, we will bounce-back fast, much faster than other economies of the World.
GRANDMARK will always play a positive and constructive role in helping businesses to come-back on track, by using its skill sets. We are a solid team of experienced professionals, always eager to help businesses of every size and nature. In coming days, we will help our clients with advisory, taxation, compliance, fund management and at all stages of a business cycle.
Thank you
CA Kanta Sharma
Founder Partner
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