Impact of covid-19 on the global industries with specific emphasis on Indian industries

impact

The manufacturing sector is a major part of the economy as it alone accounts for nearly 16% of the global GDP (as of 2018) and the Indian manufacturing industry has a contribution of 29.02% in Indian GDP(as of 2017).  Certain initiatives in emerging economies to promote the manufacturing sector like Make in India, Make in china are launched to promote the manufacturing sector.

However, the outbreak of corona virus, the global manufacturing sector has witnessed a sharp decline and the shrinking of FDI. The negative effects of COVID-19 on FDI investments are expected to be high in the field of energy, automotive, and airlines industries. Prevailing epidemic of COVID-19 across the globe, the manufacturers of the automobile, chemical, electronics, and aircraft are facing problems regarding the availability of raw material. In the electronics sector, smart-phones and consumer electronics companies have witnessed a reduction in production operations.

The economic impact of the 2020 corona virus pandemic in India has been devastating. The World Bank and other rating agencies had initially downgraded India’s growth for fiscal year 2021 to the lowest figures that India has seen in three decades since 1990s, and after the announcement of the economic package in mid-May, India’s GDP estimates were downgraded even more negative signalling a deep recession. Under a month, unemployment rose from 6.7% on 15 March to 26% on 19 April. During the lockdown, an estimated 14 crore (140 million) people lost employment. More than 45% of households all over the nation have reported a drop in income as compared to the previous year.

The Indian economy was expected to lose over 32,000 crore every day during the first 21-days of complete lockdown, which was declared in the beginning of corona virus outbreak. During a complete lockdown, less than a quarter of India’s $2.8 trillion economic operation was functional, and up to 53% of businesses in the nation were projected to be significantly affected. Supply chains have been put under stress with the lockdown restrictions in place; initially, there was a lack of clarity in streamlining what is “essential” and what is not. People in the informal sectors and daily wage groups are the most at risk. A large number of farmers around the country who grew perishables are also facing uncertainty. Various businesses such as hotels and airlines, are cutting salaries and dropping off employees. Major companies in India such as Larsen & Toubro, Bharat Forge, UltraTech Cement, Grasim Industries, Aditya Birla Group, BHEL and Tata Motors have temporarily suspended operations. Young start-ups have been greatly affected as funding has fallen. The greatest impact of the containment restrictions will be on retail and wholesale trade, and in professional and real estate services, although there are notable differences between countries. Business closures could reduce economic output in advanced and major emerging economies by 15% or more; other emerging economies could experience a decline in output of 25%. Countries that are dependent on tourism could be affected more severely, while countries with large agricultural and mining sectors will experience less severe effects.

Sectors with elevated risk:-

INDUSTRY                                                           RISK FACTOS

Airlines and operationsCash flow stopped. Interest cost to rise.
HotelsOccupation crashed.Cancellations at record high.Long tail of crisis.
AutomobilesTwo main clusters shut.On coming crisis.

Sectors with moderate risk:-

INDUSTRY                                                         RISK FACTOR

Real EstateSales and collection to moderate.Cash flow crunch, financing difficulties.Muted demand.
SteelAuto & real estate stress to reduce the demand.Shortage of contract workers.
EnergyReduced demand from industry.Lower collection & delayed payment.
Bank and NBFCsAsset quality stress.Collection efficiency to fall.Market financing environment tougher.

IMPACT ON TRADE:-

The unavoidable downfall in trade and output will have severe consequences for households and businesses, adding to the suffering caused by the disease itself. The immediate goal for the whole world should be  to bring the pandemic under control and mitigate the economic damage to people, companies and countries. But policymakers must start planning for the aftermath of the pandemic. These numbers are ugly – there is no getting around that. But a rapid, vigorous rebound is possible. Decisions which are taken now will determine the future shape of the recovery and global growth prospects. We need to lay foundations for a strong, sustained and socially inclusive recovery.

 Trade will be an important factor here, along with fiscal and monetary policy. Keeping markets open and predictable, as well as fostering a more generally favourable business environment, will be critical to spur the renewed investment we will need. And if countries work together, we will see a much faster recovery than if each country acts alone.

Trade was already slowing in 2019 before the outbreak of the virus, weighed down by trade tensions and slowing economic growth. World merchandise trade has registered a slight decline for 0.1% in volume terms after rising by 2.9% in the previous year. Meanwhile, the dollar value of world merchandise exports in 2019 fell by 3% to US$ 18.89 trillion. In contrast, world commercial services trade increased in 2019, with exports in dollar terms rising by 2% to US$ 6.03 trillion.

Conclusion

The quickly evolving nature of the COVID-19 crisis creates a number of issues that make it difficult to estimate the full cost to global economic activity. These issues include, but are not limited to:

  • How long will the crisis last?
  • How many workers will be affected both temporarily and permanently?
  • How many countries will be infected and how much economic activity will be reduced?
  • When will the economic effects peak?
  • How much economic activity will be lost as a result of the viral outbreak?
  • What are the most effective monetary and fiscal policies at the national and global level to address the crisis?
  • What temporary and permanent effects will the crisis have on how businesses organize their work forces?

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