Post corona Sectoral impact on Business in India-Medium to Long term

1) essential services

Consumer retail and internet businesses would be less affected because a majority of their offerings fall under “essential items” as outlined by the government. 

Ecommerce-based deliveries will continue to go up. Non-discretionary spending on categories like durables and high-ticket electronic items are likely to go down.

The supply of agri-commodities is expected to be normal in the short term but the larger the impact will be known only over the next quarter, according to Agri experts. Government policies on transport and logistics will also play a huge role in the pricing.

However, export opportunities in non-China countries are likely to open up. But, supply chain inefficiencies need to be strategies and the labor workforce needs to be aligned to work for essential services, according to KPMG.

2)  Health care sector

India’s public health expenditure is projected to go up from 1.28 percent to 2.5 percent of GDP by 2025.

The prices of key drugs and self-hygiene products including sanitizers, masks, gloves, disinfectants, handwash, etc. will see a steep increase until production is able to match the inordinately high demand. During and Post COVID-19, consumer demand for health insurance is expected to increase.

However, the closure of health services (except emergency ones) has impacted cash flows for private healthcare operators, leading to salary cuts and layoffs. 

3)Medical Engineering

The prices of medical and pharma equipment, especially imports from China, are also expected to go up. This might give a fillip to homegrown innovation and government incentives for MedTech start-ups.

4)Telecommunication

Telecommunications, the backbone of India’s internet economy is likely to be dented when it comes to new technology development.

 “The much-awaited 5G auctions will be hit as operators are now focusing on servicing current demand surge and improving quality of service,” KPMG says.  Also, with consumers postponing their non-essential spends, the demand for new mobile handsets and subscription-based services could also go down. 

                       Non-Essential impact

1)Apparel and Textile

One of the worst-hit sectors is apparel and textiles, which employs over 45 million (indirect jobs) as well as a sizeable number of contract labourers.

The lockdown has led to temporary closures of factories and lay-offs of low-wage earners. The sector is also facing a sharp decline in yarn exports and cheaper imports. However, experts say this will open up local sourcing opportunities for garment manufacturers, which will lead to a reduction in prices once the markets open up. 

2) Automotive sector

The automotive sector, which went through one of its lowest phases in 2019, is severely affected due to COVID-2019

Manufacturing unit shutdowns coupled with falling discretionary spends of consumers (who are postponing their vehicle purchases) have brought this sector to a grinding halt.

The availability of contract labour is also a concern.

India’s auto sector is also dependent on China for nearly 25 percent of its automotive part imports. “Disruption in supply of raw material and other critical components have hit that,” KPMG says.

3) Travel and Tourism

 This is the adversely affected sector having highest loss of business.

The Indian Association of Tour Operators estimates that the hotel, aviation, and travel sector put together may incur a loss of about Rs 85 billion due to the restrictions imposed on foreign tourists.

The sector is reeling from large-scale cancellations and a complete pause on domestic operations. Both outbound travel and inbound travel to India are expected to be at an all-time low this year.

Supply-side impact 

Among the top COVID-19 infected nations, China is India’s largest source of import. As a result, delay in imports from that country or additional custom duties will lead to a shortage of both raw materials and intermediate goods for Indian companies. 

Top commodities imported by India from China are electrical parts and equipment, machinery and nuclear reactors, organic chemicals, plastics, and fertilisers. 

Firms that utilise these commodities will face hindrances in R&D, operations, new investments, and product launches. Additionally, the shutdown of factories and manufacturing units will increase the pressures on an already hassled supply chain.

However, the overall impact of China on the Indian economy could be muted. 

“While a disruption in output in China could impact some Indian industries, the economy at large may be relatively insulated, given its low reliance on intermediate goods from there as well as the common practice among Indian firms of stockpiling inventory.”

Old Indian habits might just come in handy in these trying times. 

Light at the end of the tunnel?

Despite the blur picture of future ahead, the United Nations Conference on Trade and Development (an intergovernmental body) believes that India might be one of the two “major economies least exposed” to a global recession. 

In fact, analysts also believe that India’s economic recovery will be “smoother and faster than that of many other advanced countries”.

However, the business landscape post the pandemic will look vastly different.

It is expected that, there would be a significant shift towards localisation, a greater push for digital, supply chain resilience, companies opting for liquidity, and the emergence of variable cost models that can absorb crises better.

With global economies expected to adopt de-risking strategies, they have started action to shift their manufacturing bases outside China, thus creating exciting opportunities for India.  “But the extent to which this opportunity can be leveraged is dependent on how quickly the economy recovers and the supply chain issues are addressed,” analysts say.