Introduction:
The COVID 19 pandemic was a never before incident for the entire world. Without any cure in sight all the countries were relying to best possible strategy to tackle the pandemic and the effect it can cause to the life, industry and economy. India took a philosophy of “life should come before livelihood” as the Prime Minister pointed out during his address to the Nation “Only if there is life, there will be livelihood”. This is the rational upon which India went on to one of the early, long and strict lockdowns in the world, for the entire country starting on March 25, 2020. Definitely the situation created huge and devastating effect on the Industry and its Economy. This report try to assess the effect of the Covid / lockdown to some of the industry segments as data and information obtained from various studies, Government portals, leading dailies, and other secondary and tertiary sources.
- The Spread of Corona Virus (COVID-19 in India:
January 30, 2020: This is the day when the first case reported in India, in the state of Kerala. There were 3 cases and all the 3 were students who returned from Wuhan, China.
March 03, 2020: This is the start of the second spurt. From then on the number started increasing, sometime steadily and sometime erratically. At this time the infected people were mostly those who returned from the European Countries & Middle East. There were also cases of foreign tourists in India being tested positive.
March 11, 2020: WHO named and declared COVID-19 a Global Pandemic.
May 31, 2020: As of this date the number of total COVID-19 cases reported stand at 182,143, with 89,995 active cases, 86,984 recovered and 5,164 deaths.
Lockdown timelines:
Lockdown Phase I: March 25 – April 14
Lockdown Phase II: April 15 – May 03
Lockdown Phase III: May 04 – May 17
Lockdown Phase IV: May 18 – May 31
Further which the name changed to Unlock 1 and started from June 01.
Amongst the states: Maharashtra, Tamil Nadu, Delhi, Gujarat, Uttar Pradesh, Rajasthan, Madhya Pradesh, West Bengal, Karnataka, and Bihar are the 10 states with higher numbers of infections.
Eight states most affected by the COVID-19 pandemic account for over 60 per cent of the GDP and the extended restrictions will slam the economy harder – Crisil report in May. The eight states, which include Maharashtra, Gujarat and Tamil Nadu, among others also account for 58 per cent of the employment.
- Effect on Major industrial sectors of India:
Some of the Major Industries of India affected by the COVID19 & Lockdown:
For most of the sectors which were on a downhill ride, suddenly felt like a fall from the cliff.
Tourism & Hospitality:
Tourism & Hospitality is the most badly affected industry due to the Lockdown, and esp. of social distancing norm. This is one of the largest service industries in India. India is ranked at 34, in the Travel and Tourism Competitive Index of World Economic Forum, in 2019. 100% The industry was worth US$ 234 billion in 2018 and is the 3rd largest Foreign Exchange Earner in India.
The share of tourism in India’s GDP was 5.06% in 2016-’17, down from 5.81% from 2014-’15, according to the tourism ministry’s annual report of 2019-20.
The Federation of Associations in Indian Tourism & Hospitality (FAITH) estimate Indian Tourism Industry’s economic value at risk to Covid 19 lockdown to INR 10 Lakh Crore. Because of the strict Lockdown measures and the travel ban due to Covid, the entire supply chain system have broken down across all its key inbound, domestic and outbound markets. Clubbing the direct as well as the indirect economic impact of the Covid pandemic and the lockdown with a full-year economic multiplier value of tourism industry in India will be at almost INR 20 lakh crore, which is 10% of India’s GDP. The whole value chain of Tourism include, Airlines, Travel Agencies, Hotels, Tour operators, Tourism destination restaurants, tourist transporters, and tourist guides.
The Lockdown may cause 38 million job losses (which is 70% of the total workforce of the industry) in the tourism and hospitality industry. The sector employs 12.75% of the country’s workforce. 5.56% direct and 7.19%indirect – report by KPMG released on April 1, 2020. Over 87 million people were employed in the tourism industry in 2018-19, according to the ministry of tourism’s annual report for 2019-20.
While the Government has given allowance to reopen several industries in the third phase of the lockdown, hospitality services including hotels and restaurants remained prohibited due to the social distancing norm. Travel and tourism will be one segment which will take rather longer period to recover than expected. That will mainly be due to the fear factor and social distancing norm until a complete cure for the virus is found.
Real Estate:
Real Estate / Construction sector contributes to 9% of India’s GDP and is currently worth about US$ 12 billion. After Agriculture sector, this industry creates maximum employment generation and currently employs about 51 million in India.
Real Estate Industry in India includes Real Estate as well as Urban Development. Real Estate segment covers residential, commercial / office, retail, hotels and leisure parks, etc. Urban Development segment covers water supply, sanitation, urban transport, schools, and healthcare.
This sector in India is highly unorganized and hence very difficult to track and monitor the size, revenue, growth, and other drivers of the sector. However, the recent Real Estate Regulatory Act (RERA) is the first step in India to regulate this sector. In 2018 this sector is opened for 100% FDI.
Real estate sector has been facing liquidity crunch, issues with currency ban, huge unsold apartment, and stricter housing laws, so on and so forth. According to property consultancy JLL, the number of active property developers in India’s major cities plummeted 36% between October 2018 to March 2019. A recent reprieve for this sector was the announcement of creation of an alternative investment fund of US$ 3.58 billion by the Finance Minister, providing last-mile funding for around 1,600 stalled affordable, middle-income housing projects (in November 2019).
However, the warehousing property segment emerged as a promising sub-sector in the Real Estate sector. Warehousing demand was increasing before the Covid /Lockdown situation due to various factors such as implementation of GST, increasing industrial corridors, infrastructure status to logistics industry including warehousing, thrust on Manufacturing added with India’s increasing consumption market.
Real Estate /construction sector has been hit hard by the COVID pandemic. Work on all on-going / under development projects were forced to stop as the nationwide lockdown came to effect from March 25, 2020. The material supply chain has been disrupted since inter-state travel is restricted and the prices of cement and other materials have skyrocketed. Another problem is an impeding labour shortage. Left without work, many migrant labourers have fled India’s big cities to return to their home towns and villages.
As per US based property consultant Vestian: During the 4th quarter of the last fiscal 2019-20 (Jan-Feb-Mar 2020) Institutional Investment in Real Estate dropped 44% to US$ 727 million compared with the same period of the previous financial year. For the entire Fiscal 2019-20 this fell by 12% to US$ 4.48 billion. Total Investment US$ 4,480 million, out of which 81% share ($ 3,636 million) accounted for commercial assets followed by 13% share ($ 565 million) for residential segment. Majority of the Investment in real estate during 2019-20 were led by investors from US, Singapore, Hong Kong and Japan. US accounts for 67%. On revival, Vestian feels the Commercial segment could revive in the next 2 to 3 quarters while the residential segment could take longer period.
In recent week tougher measures has been eased to allow some construction activity to resume. But demand for both residential and commercial property remains weak. Job loss and pay-cuts across industry is affecting the demand. Increased remote working (work from home) has also affected the demand for the commercial segment. Slowdown in US and EU market will also diminish the commercial segment demand. Co-working space, which was a hot segment until recently will also be off demand considering the social distancing norms.
Property consultant Knight Frank expects prime residential estate prices in Mumbai to fall 5 per cent this year and 3 percent next year.
The structural reforms, liquidity schemes and fiscal support provided by the central bank and Indian government are expected to provide some relief to stressed asset classes of Indian real estate. The Reserve Bank of India reduced the repo rate by 115 basis points which would lead banks to soften interest rates on home loans. Even though this will not happen overnight, but over a period of time this could prove crucial in driving property sales. Demand will also be more for ready-to-move-in properties. Magicbricks data shows more than 80% of searches are for read-to-move-in with increasing demand for smaller (1 or 2 bedroom) apartments.
Lower returns from Mutual Funds and stocks would probably get people back to real estate.
Many foreign Indians are returning back to India. This might increase demand in housing apartments with some amount of investment from them going to purchase flats. Foreign investment could increase to the real estate due to the devaluation of Indian Rupee against US Dollar. Everything has become 10% cheaper.
Organized co-living demand will increase for students and single working professionals which will see many new players coming in this segment.
Digital Push: Many developers are planning “e-launches” for its luxury housing projects. For the first time in India, a real estate product is been launched in a fashion similar to the automotive or the mobile phone industries. Also AR/VR technologies are being used to have a virtual site visit for hopeful buyers and also for a glimpse of status of work completed. (Currently developers spend only 25% of their marketing spends on digital technologies)
Aviation:
India is the 3rd largest aviation market in the world, as per 2018 figures of Airports Council International (ACI) in terms of passenger throughput; and 5th largest market in terms of aircraft passengers, both domestic and international combined. India had 316.51 million passenger traffic during April 2018 to February 2019.
India, with 91 international carriers (5 Indian & 86 foreign) has been projected to be the 2nd fastest growing country in the world for passenger traffic between 2017 and 2040 by ACI.
This sector currently contributes US$ 72 billion to India’s GDP and employs about 7 million people directly and indirectly. It is also one of the prime sectors that attract foreign investment.
During the pre-lockdown period Indian airports handled around 3,000 daily domestic flights. In February around 412,000 passengers travelled daily through domestic flights.
During the extended lockdown stage III, global analytics company CRISIL released a report on May 7. According to this report Indian Aviation Industry will witness a revenue loss of INR 24,000 crore to 25,000 crore, in this fiscal. It also states that the losses will go up if travel restrictions last longer, especially in hubs like Mumbai, Chennai, Delhi and Kolkata. The Airline flights were suspended from March 24, with only cargo and repatriation flights being allowed.
The segmented loss structure is: Airlines – about INR. 17,000 (70% of the total)
Airport Operators – INR 5,000 to 5,500 crores
Airport Retailers – INR 1,700 to 1,800 crores
This will be reversing the trend of growth of about 11% per annum and will take the industry back to where it was past 10 years. Given the condition, it will take at least 6 to 8 quarters for the industry to reach pre-pandemic stage.
InterGlobe Aviation Ltd, parent company of India’s largest airline IndiGo reported a consolidated loss of INR 871 crore in the fourth quarter, as against a profit of INR 596 crore in the same quarter, last year. IndiGo, in April, asked its employees to go on leave without pay for a few days every month, while some of its senior management took pay cuts.
Pre-COVID: There saw a muted growth in domestic and International passenger traffic led by the slowdown in the Indian Economy and also grounding of the 3rd largest airlines in India, the Jet Airways. The total passenger traffic increased at a low rate of around 2.5%, going from 344.7 million in fiscal 2019, to 353.2 million in fiscal 2020, and the freight traffic saw an average decline of 4%.
Domestic services in India resumed on May 25, and since then Indian carriers operated a total of 4,062 flights till June 01. However, only a third of the operations are allowed until August 24.
Some of the measures taken by the authority after reopening, for reducing spread of infection are; mandatory web check-ins, reduced frequent security checks at boarding gates, restrictions on cabin baggage, reducing crowding by limiting the number of passengers entering airport terminals, etc.
Post-lockdown the industry could witness 40 to 50 percent fall in willingness to travel, scaling down of routes, fleet rationalisation and under-utilisation of resources. Some of the macro trends that can be expected are; Mergers & Acquisitions of airlines relook at expansion plans of private and upcoming green field airports.
Government intervention and support will be crucial such as, airlines be supported through support packages, tax exemptions and swift policy actions.
According to rating agency ICRA, the domestic aviation industry will require an additional funding worth INR 325 to 350 billion during FY 2021 – 23. The industry is expected to report revenue de-growth of 44% and a negative CAGR of 26% in 2021 – 2023. The industry level debt is expected to increase to INR 465 billion. According to ICRA, the domestic traffic growth witnessed a 7 year low of 0.7% in the previous fiscal, while the dip in the international traffic was much higher at a negative 13.5%.
Automobile:
Automobile industry contributes to 7.1% of India’s GDP, and generating 35 million employments. This is one of the manufacturing industries which affected the maximum.
India is world’s largest tractor, two-wheelers and 3 wheelers manufacturing country; second-largest bus manufacturer; and third largest heavy trucks manufacturer. The industry is worth US$ 74 billion and India’s annual production has been 29.08 million vehicles in 2018. The growth in this segment was calculated to be around 15% CAGR.
100% FDI is allowed in the sector and the sector attracted USD. 22.4 billion FDI during April 2000 to June 2019, accounting for 5.1% of the total FDI inflows.
The 45 day Covid / lockdown induced factory shutdown has hit the automotive sector hard. Since the lockdown, Export orders worth US$ 4 to 5 billion are at stake. A revenue loss of over INR 1 lakh crore is estimated.
Automobile component manufacturing industry body ACMA reported that the component manufacturing industry is suffering a loss of INR 1,200 crore per day due to the nationwide lockdown. Most auto stocks went down by nearly 40 to 70% since February 2020.
Because of the social distancing norm, people are avoiding public / shared transport and moving to private vehicles. As per ICE 360 survey, India’s 36% of population own a two-wheeler and this population is more towards the lower economy strata of the society. Considering the job loss and pay-cut among this segment of people, it is unlikely for people from this segment to buy two-wheelers in the near future.
New Work-from-home norm that are expected to hit most white-collar professionals such as IT and financial services, will also contribute to a reduction in the demand for cars, as per an HSBC report. And hence the personal car sales are not expected to see a hike of more than 2%.
According to industry body SIAM (Society of Indian Automobile Manufacturers), the Covid-19 pandemic has come as a double whammy as the industry was already reeling under recession for over a year now. Passenger vehicle and two-wheeler vehicle sales, both declined by 18% in March-April 2020 as compared to the same period last year.
It was a double blow for this industry as the decline in sales was continuing for few recent successive quarters. It reported a 35.9% drop in domestic sales in August 2019, mainly due to factors such as slowing of the economy, crisis in NBFCs, subdued market confidence, so on and so forth.
However, a report titled Changing Gears by ‘carandbike.com’ shows some relief in the segment post-Covid lockdown. They predict a V-shaped recovery. The survey conducted in April (during the Covid Lockdown) says that nearly 75% of the surveyed were willing to buy a vehicle once the lockdown is lifted. It is mainly due to the preference for private mode of transport to public. Social distancing is the major factor in this shift. However, used / pre-owned vehicles could be a better option if pay-cuts and job losses increase. A 10% increase in pre-owned car purchase during FY 2020 substantiates this trend.
Maruti Suzuki, country’s largest car maker, on their survey among 1,800 dealerships also show some happy trend as enquiry for personal small segment cars have increased during this period and hence they expect sales in this segment to give some reprieve in the near future.
This is also perceived to be a boost for Electric Vehicles as many manufacturers plan for launching EV, mainly in 2 and 3 wheeler segments. In 2019-20 EV sales, excluding e-rickshaws grew by 20% at 1.56 lakh units, driven mainly by 2 wheelers. The Government of India’s vision is 100% electrical mobility by 2030.
Consumer Electronics / Electronics / Manufacturing:
Electronics manufacturing sector accounts for 2.5% of India’s GDP and employs over 13 million people through direct and indirect jobs.
The segment-wise share of India’s Electronics Product industry is as follows:
Mobile Devices – 27%; Consumer Electronics – 18%; Industrial Electronics – 15%; IT/Office automation – 10%; Automotive Electronics – 8%; Telecom – 8%; Strategic (Aerospace & Defence) – 7%; Medical Devices – 4%; and others – 3%.
The electronics market was expected to reach USD$228 billion by 2020. This is a significant increase from 2016-17 when it was valued at $100 billion. The annual growth rate was calculated to be 26% average.
The consumer durables sector was estimated to be around INR 76,400 crore in FY’19.
India’s Smartphone Market Grew a Modest 4% Annually in Q1 2020 as COVID-19 Impacted Late in the Quarter.
The handset manufacturing industry was looking at a loss of close to INR 15,000 crore during the initial phase of the lockdown (till April 14, 2020). As per Indian Cellular and Electronics Association, per day turnover is between INR 500 crore to INR 700 crore. Foxconn, Flextronics and Wistron contribute to maximum handsets made in India.
Market research agencies expect a near 4% year-on-year decline in sales for 2020. This will be the first ever annual decline. On-year drop in sales of handsets are estimated to be 27% for the month of March and 60% for the month of April. From 3rd phase of Lockdown Government started allowing sales of Mobile phones and other equipment considering the work-from-home demand to be sold by e-commerce companies in non-red zone areas.
The Covid-19 effect for the Electronics as well as Automobile manufacturers started with the lockdown in China. Makers of automobile, consumer electronics, and pharmaceuticals in India mainly rely on China for supply of several raw materials and parts like, compressors, electronic components, sensors, active pharmaceutical ingredients, etc. It is estimated that around 60 to 70% of component / raw materials are depended on China market. Manufacturers were chartering cargo flights to get raw materials from China and South Korea which increased the cost of production in the previous quarter. Chartered cargo was costing 125% more. Electronics makers had increased their product price by 3 to 4% before the Covid Lockdown in India because of this factor, as newspapers reported this dating February 27.
All category of manufacturing industries showed a contraction in production in March, with the worst affected being the automobile sector, which saw around 50% decline, and the computer and electronic products sector, which fell almost 42%. The manufacture of machinery, electrical equipment and other metal products saw a 31-33% fall in output.
Index of Industrial Production contracting at 16.7% in March as against growth of 4.5% in February.
Manufacturing sector output slumped 20% in March. Electricity Generation shrank almost 7%. Mining sector remained flat, without any growth or contraction in output. Industrial production is expected to decline by 60 to 70% in April.
The most resilient sectors were coke and refined petroleum products, which only contracted 1.8%, and food and beverages manufacture, which shrank 10.5% and 6.4% respectively. The FMCG sector may show some recovery, and rest all will be in doldrums.
IT & ITES
The Information Technology/Business Process Management (IT-BPM) sector contribute a share of nearly 8% to India’s GDP and stood at US$177 billion in 2019 witnessing a growth of 6.1 per cent year-on-year. It was estimated to be around US$191 billion in FY 2020 at a year-on-year growth rate of 7.7%.
India’s IT & ITeS industry grew to US$ 181 billion in 2018-19. Exports from the industry increased to US$ 137 billion in FY19 while domestic revenues (including hardware) advanced to US$ 44 billion.
IT industry employees 4.1 million people as of FY19.
The revenue from the digital segment is expected to form 38% of the total industry revenue by 2025. Digital economy is estimated to reach INR 6,989,000 crore (US$ 1 trillion) by 2025.
The computer software and hardware sector in India attracted cumulative FDI inflow worth US$ 43.58 billion between April 2000 and December 2019. The sector ranked second in FDI inflow as per the data released by the Department for Promotion of Industry and Internal Trade (DPIIT). Private Equity investment in the sector stood at US$ 11.8 billion across 493 deals in 2019. Venture Capital investment in the IT & ITeS sector stood at US$ 67.0 million during Q3FY19.
Corona virus and the lockdown have shaken the IT Industry in total. All the outsourcing jobs from foreign countries are re-shored. Lockdown in other countries also affect the business in India apart from India’s own lockdown. Companies such as TCS, Infosys, HCL, etc. will be impacted by reduced technology spending by clients in the US, Europe. Recent Gartner report also estimated that Global IT spending is expected to shrink by 8% in 2020. Crisil estimated that revenue growth for the industry will decline to a decadal low of 0-2%.
Handling sensitive data such as financial transactions of banks are highly risky to be done by working-from-home. The IT infrastructure at home may not be as good as that of office, which also affected the flow-less operation. Some companies such as Vodafone India have arranged stay facility for its employees at their data centre location making food and groceries available.
Before the covid-19 outbreak, cyber security demands were 10% of the total IT requirements. During lockdown they have gone up to 15%, fuelled largely by remote working requirements. Once the lockdown lifts, it is expected to go up to 20%, according to TeamLease Services, India’s leading staffing company.
These situations have increased AI adoption in the BPM industry and many first time companies are adopting chat-bot and other AI Solutions.
An initial report during the early lockdown period, by HDFC securities say they expect the revenue of the IT sector to reduce by 2 to 7% due to a slowdown in decision making in the succeeding 6 months while business across the world evaluate the impact of the virus that is disrupting the global economy.
ICICI Direct states the reasons that affect the IT firms as; pricing pressure, revenue loss due to lockdown (in India and many countries globally), client bankruptcy and slower client decision making led by lower discretionary spends.
However, Electronics and Computer Software Export Promotion Agency (ESC) feel that the Electronics and Software industry is likely to bounce back in the long run as many global companies plan to move out of China, and India may emerge as an alternative destination. India has also come out with attractive investment policies in the ESDM sector explained later in the report.
MSME Sector:
The micro, small and medium enterprises (MSME) sector, often called the backbone of the Indian economy, has had to shut small-scale factories, and was working with minimal workforce. The COVID-19 pandemic has decimated the MSME revenue even more, said the “COVID-19 Startup Impact Report — Threats & Opportunities for the Indian Economy”.
Out of 58.5 million establishments of India 99.8% are Micro and Small Businesses. The MSME segment contributes 29% of countries GDP; 33.4% of manufacturing output; 45% of overall exports. It employs 120 million people.
As per a survey conducted by Kantar during the initial lockdown period, 79% of MSMEs have negative impact directly to their business. Travel, Transport and Logistics are the severely hit. 76% of businesses are completely shut down. Within the 24% that are operational 18% operate with less than 50% capacity.
Restrictions on movement for customers and low demand are the key reasons leading to high level of customer-oriented challenge. 92% – customer oriented; 79% – supply chain oriented; 74% – financial oriented and 65% – Employee oriented.
Agriculture:
Agriculture is the primary source of livelihood for about 58 per cent of India’s population. Gross Value Added by agriculture, forestry and fishing is estimated at US$ 265.51 billion in FY19.
Initially there was a belief that the agriculture industry will be more or less unaffected of the Covid Lockdown situation as mostly the essential commodities such as food materials were allowed. However, most of the food items that were transported during lockdown were of earlier stocks.
The disruption of wholesale markets and transportation hit the perishable items. Flower growers have not demand from temples, weddings & hotels. Non-availability of migrant labourers affected the harvest. Rain and hailstorm damaged the ripe corns.
A study during the first two weeks of May by the Public Health Foundation of India, Harvard T H Chan School of Public Health and the Centre for Sustainable Agriculture found that “10% of farmers could not harvest their crop in the past month and 60% of those who did harvest reported a yield loss” and that a majority of farmers are facing difficulty for the next season.
From 20 April, under new lockdown the Government released guidelines to reopen certain segments of economy. Agricultural and allied activities and associated establishments were allowed to operate and run. By the end of April, INR 17,986 crore (US$2.5 billion) had been transferred to farmers under the PM-KISAN scheme.
Industry segments comparatively unscathed by the Covid 19 Lockdown:
Telecom:
Telecom turned to be the invisible hand driving the new normal of Work-from-home / Social Distancing. Stay at home surged the demand for more data. Data usage is expected to be up by 10 to 15% in the home broadband and mobile space, by SBI CAP Securities. The Government of India declared “telecommunications, internet services, broadcasting and cable services, IT and IT Enabled Services” as essential services and exempted from lockdown.
According the news, overall data traffic increased by 10% and streaming platforms witnessed a 20% spike in viewership.
However, the overall slowdown will bring in only 5% growth in the company’s top line. Also, the Indian telecom players have a bigger problem when the country’s highest court asked the players to pay interest and penalty on pending statutory dues. The players had to include the non-core revenue as well to be considered for calculating the statutory due to Government. This was at a time when late entrant Reliance Jio Infocomm was revolutionising the sector with cheapest tariffs on offer.
The flurry of foreign investment that Jio Platforms received during just over 1 months’ time prove the role that Telecom can play even during such a pandemic situation. Followed by the investment of Facebook in Jio Platform, the news was showing Amazon in talks with Bharti-Airtel for a 5% stake and also Google in discussion with Vodafone-Idea Cellular.
Pharmaceutical / Healthcare:
India to spend nearly INR 10,000 crore (US$1.3 billion) to encourage companies to manufacture pharmaceutical ingredients domestically after the coronavirus outbreak disrupted supply chains, raised the sector of drug shortages. However, 70% of the APIs are imported from China and it depends on the supply chain flow to keep the sector up and going.
The Government has also allowed the private labs to do the testing for the covid 19 with price cap. However, this is not going to make much revenue to the segment as the day-to-day walk-in to hospitals, smaller clinics and labs have considerably reduced.
Insurance:
The Insurance Regulatory Development Authority of India has asked insurers to cover Covid 19 in their existing policies. The factor that work positive for this sector is that this is a sector which is much under-penetrated in India, hence the impact will be lower compared to other segments. Also mostly life insurance policies are more of protection policies and has less dependence on Unit linked policies and hence the product mix is more balanced. Further many policies are initiated by corporates linked to salaries of employees. In this case there could be some disruptions for the time being, but overall it won’t affect much.
- Government schemes and support during the Covid-19 / Lockdown period:
The Government of India announced variety of measures to address the situation, from food security, funds for healthcare and States, sector related incentives, non-collateral loan facilities, deadline extension, easing of regulatory compliances, etc. etc.
March 21: To Position India as a global Hub for Electronic System Design and Manufacturing (ESDM) sector and push further the vision of the National Policy on Electronics (NPE) 2019, three schemes were notified by the Government of India on April 1, 2020.
1. The Production Linked Incentive Scheme (PLI): The Production Linked Incentive Scheme (PLI) for large-scale electronics manufacturing proposes a financial incentive to boost domestic manufacturing and attract large investments in the electronics value chain including mobile phones and specified electronic components. PLI of up to US$ 5 billion will be awarded over a period of 5 years.
2. Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS): Aims to strengthen the manufacturing ecosystem for electronic components and semiconductors to help meet domestic demand, increase value addition, and promote employment opportunities in this sector. Incentives of up to US$ 434 million will be awarded under the scheme over a period of 8 years.
3. Modified Electronics Manufacturing Clusters scheme (EMC 2.0): This Scheme seeks to strengthen the infrastructure base for the electronics industry and deepen the electronics value chain in India. The development of industry-specific facilities like CFCs, ready built factory sheds/plug-and-play facilities will not only strengthen supply chain responsiveness and promote the consolidation of suppliers but also decrease the time-to-market and lower logistics costs. EMC 2.0, therefore, provides financial incentives for creating quality infrastructure as well as common facilities and amenities for electronics manufacturers. Financial incentives of up to $ 497 Mn will be disbursed over a period of 8 years.
March 24: while announcing the decision of India going to the Lockdown, the Prime Minister announced US$ 2.1 billion fund for the healthcare sector to tackle the Covid-19 situation.
On this day itself many other announcements were there such as, extension of due dates for GST and Income Tax return filings. Extension of due dates for customs clearance and for compliance matters under the Customs Act and also Companies Act. Mostly all the deadlines were extended from March 30 to June 30.
Lockdown Phase 1 (25th March to 14th April)
March 26: The Finance Minister announced a number of economic relief measures mainly aiming the poor. US$ 24 billion to provide both direct cash transfer and food security with an aim as to “no one should go hungry during the lockdown”. Free cooking gas cylinders for 3 months. INR 2,000 announced to deserving farmers of the country. For the organised sector worker, the government will pay the Employees’ Provident Fund (EPF) contributions of both sides for 8 million employees of small companies who earn up to ₹15,000 a month. The raise in the threshold from ₹100,000 to ₹10 million for triggering insolvency proceedings under the Insolvency and Bankruptcy Code (IBC) was done to help MSMEs.
March 27: the Reserve Bank of India (RBI) Governor made a number of announcements including EMIs being put on hold for three months and reducing Repo Rates. Other measures introduced will make available a total US$ 52 billion to the country’s financial system.
March 28: The Prime Minister launched a new fund called PM CARES fund for combating coronavirus-like situations.
April 03: the central government released US$2.4 billion to different states to help combat coronavirus. The Ministry of Home Affairs approved US$1.6 billion for states as relief under the State Disaster Risk Management Fund.
Lockdown Phase 2 (15th April to 3rd May)
As part of the new lockdown 2.0 guidelines, the Ministry of Home Affairs announced, among other things, that all agricultural and horticultural activities will remain fully functional. Information technology companies can function with 50% staff. The partial lifting of restrictions would take place from 20 April.
April 17: RBI announced more measures to counter the economic impact of the pandemic including US$7.0 billion special finance to NABARD, SIDBI, and NHB mainly for boosting lending and liquidity.
April 18: India changed its FDI policy to protect Indian companies from “opportunistic acquisitions” during the COVID-19 pandemic.
Amendment to FDI Policy:
The Department for Promotion of Industry and Internal Trade, Ministry of Commerce & Industry, Government of India (DIPP), the Government agency responsible for FDI policy which regulates foreign investments into India, has amended the FDI policy, with a view to protect Indian companies against opportunistic takeovers/acquisitions during the COVID – 19 pandemic. The amendment has come into effect from April 22, 2020.
As per the new amendment to the FDI policy, any entity or beneficial owner of an investment into India or a citizen, based in a country which shares land border with India can invest only under the Government route. Also, the transfer of ownership of any existing or future FDI in an Indian entity, directly or indirectly, resulting in the beneficial ownership falling within the above restriction will also require Government approval.
Even though the Government of India was mulling over this amendment, the sudden implementation is viewed to be over the recent hike in stake made my Peoples Bank of China in India’s Housing Development & Financial Corporation (HDFC) from 0.8% to little over 1%.
Lockdown Phase 3 (4th May to 17th May)
The country was divided into various zones (green, orange, red, containment) and as per the zone more relaxations were allowed and more establishments been opened up.
May 12: The Prime Minister announced an overall economic package worth US$ 280 billion, which include the already announced schemes / allocation by the Government as well as the Reserve Bank of India. The Prime Minister also announced that the next phase of lockdown will be with new rules with an aim of slowly opening of more economic activities in the country.
May 13: From this day onwards, for the next 5 days, the Finance Minister elaborated the Economy Package announce by the Prime Minister. The definition of MSME was also changed with enlarged brackets to benefit more companies under MSME schemes. The announcements on the first day also included collateral free loans and bank guarantees that would allow resumption of work for many MSMEs. For non-bank lenders a liquidity scheme and partial credit guarantee scheme. Tax deadlines were also extended.
May 14: The Finance Minister, for the second day, continued announcing the details of the economic package. Migrants, farmers, street vendors among others were covered in the package and the “One Nation One Ration Card” scheme was emphasized.
May 15: In the third day of announcement the fisheries and animal husbandry infrastructure fund was announced. Agri-infrastructure fund, agricultural marketing reforms for farmers and fair price legal framework support for farmers were among other things covered.
May 16: the Finance Minister, for the fourth day, continued the announcement of the economic package. A fund for farm-gate infrastructure was announced, amendments to the Essential Commodities Act, as well as the opening up of the defence sector, power sector and space sector for privatization. While not all the measures in the package provided immediate relief, the Finance Minister said that the immediate needs of the country had also been addressed.
May 17: The Finance Minister concluded the announcement of the economic package.
Lockdown Phase 4 (18th May to 31st May)
May 20: the Cabinet of India cleared some proposals of the economic package, including a free food grain package and collateral free credit for MSMEs.
May 22: The RBI Governor held an unannounced press conference in which he extended the moratorium on loans further for a quarter and cut repo and reverse repo rates among other things. The RBI Governor said that food inflation will be a stressor, but added that the forecast for normal monsoons and positive growth in the next quarter would be a positive, and that “the combination of fiscal, monetary and administrative measures will create conditions that will enable a gradual economic revival going forward.” RBI also allocated funds for Exim Banks and an extension to SIDBI. The measures were a result of the meeting of the Monetary Policy Committee on 22 May.
May 25: Domestic flights resumed with limited operations.
May 30: New lockdown guidelines were announced from June 01 the phase will be called as Unlock 01.
The US$280 billion Economic Package explained:
- Economic Barometers:
Pre-pandemic situation as on January 2020.
- GDP growth rate for Q3 rose to 4.7% from4.5% in Q2.
- Nikkei India Manufacturing PMI rose from 52.7 to 55.3. (Highest since Nov. 2012)
- Eight core industries sector recorded 2.2% growth.
- The Infrastructure sector expanded by 1.5%.
- The unemployment rate easing to 7.2% in January from 7.6% earlier. (However, this increased to 7.8% in February)
- The GST collection increased to INR 110,818 Crore in January from INR 103,184 Crore in December 2019.
Current situation (till May 31 2020).
GDP:
| FY | GDP growth% |
| FY16 | 8 |
| FY17 | 8.3(+0.3%) |
| FY18 | 6.6(-1.4%) |
| FY19 | 6.1(-0.5%) |
| FY20 | 4.2(-1.9%) |
| FY21 | -5(-9.2% est.) |
India became the world’s fifth largest economy last year, according to data from the IMF’s October 2019 World Economic Outlook. When ranked by nominal GDP (US$3.202 trillion), the country leapfrogged France and the UK. India is the 3rd largest by Purchasing Power Parity (US$11.321 trillion).
India’s GDP growth has been declining since 2017-18 (Table above). The economy has never lost growth momentum for three consecutive years since 1991-92.
The daily GDP of India is estimated to be approximately USD 8 billion.
Frequent corrections happened in the GDP / Growth predictions by agencies.
· Ratings agency Moody’s slashes India’s GDP growth forecast from 2.5% to 0.2% for 2020.
· CRISIL has cut estimates of India’s FY21 economic growth rate to 1.8% from earlier 3.5%.
· The Indian economy may either contract 2.1 per cent or grow 1.9 per cent in the current fiscal year (2020-21), depending on when the lockdown is lifted and how soon the economic activity picks up, India Ratings and Research (Ind-Ra).
| GDP growth rate by various agencies during April 2020 | |
| India Ratings (for 2020-21) | (-) 2.1 to 1% |
| CII (for 2020-21) | (-) 0.9% to 1% |
| Nomura (for 2020) | -0.50% |
| Fitch Ratings (for 2020-21) | 0.8% |
| Moody’s Investors Service (for 2020) | 2.50% |
| Goldman Sachs (for 2020-21) | 1.60% |
| World Bank (for 2020-21) | 1.5-2.8% |
| IMF (for 2020-21) | 1.9% |
| Asian Development Bank (for 2020-21) | 4% |
| Revised GDP growth rate by various agencies after the Economy Package (for 2021) | |
| Bernstein | -7% |
| ICRA | -5% |
| Goldman Sachs | -5% |
| Nomura | -5.2% |
| Fitch | -5% |
| Moody’s Investors Service | -4% |
| SBI | -4.70% |
| CARE Rating | -1.5%-1.6% |
As the lockdown restrictions started easing at some parts of the country, Barclays assessed a series of high frequency indicators to measure the revival of economy. There are continuing signs of economy inching back to normalcy; however, a strong revival cannot be expected in the near term.
They assume that a partial movement control will be there at key economic states such as Maharashtra, Gujarat, NCR, etc. for around 10 weeks beyond the phase 4 of lockdown. This additional period will see an incremental economic loss of US$ 71.5 billion, bringing the total cast of lockdown to approximately US$306 billion (INR 2,300 billion – 11.5% of GDP).
Purchasing Managers Index:
Manufacturing PMI touched 27.4 in April, the lowest since the survey started 15 years ago and against 51.8 in March. However, it increased to 30.8 in May.
During March it was just below 50-mark which is the separating line for growth from contraction. Last time the three consecutive month contraction was from November 2016 following the ban of high-value currency notes, which had severely hurt the consumption.
A composite PMI, which includes manufacturing and services, also signalled a severe contraction. With economic output set to fall enormously in the first half of 2020, it is clear that the recovery to pre-COVID-19 levels of GDP is going to be very slow.
Consumer Confidence Report by Reserve Bank of India:
2 months into the Covid-19 lockdown, consumer confidence totally collapsed with half of those polled expecting incomes to shrink and prices to rise. The survey was conducted in 13 cities of India between May 5 and 17. 74% opined that the economic situation has deteriorated, 67% said that expectations on employment has worsened.
Unemployment:
According to Centre for Monitoring of Indian Economy, unemployment rate in India is at 20.19% for the week ended May 31. Since the announcement of the lockdown, the unemployment rate has dwindled between 30.93% and 21.45%. As the lockdown is easing the unemployment rate started coming down. However, the opening of industries gradually, shows an increase in labour participation to 38.8% during week ending May 21 from 35.4% for the week before.
News show that the organized private sectors of India is planning job cuts/ layoffs due to the pandemic and lockdown. According to a survey by MyHiringClub.com Sarkari-Naukri.info 68% of the employers surveyed have either started the layoff process or are planning to. The survey covered 1,124 companies across 11 industry sectors in 25 major cities, and was conducted between May 1 and May 10, 2020.
The survey shows the percentage of layoffs as: Retail & FMCG – 49%; Hospitality / Aviation / Travel – 48%; Automobile / Manufacturing & Engineering – 41%; Real Estate – 39%; Power Sector – 38%.
Stock exchange:
On 23 March 2020, stock markets in India post worst losses in history. The stocks were on a downfall during the pre-lockdown stage as well.
Both the S&P BSE Sensex and the NSE Nifty 50 saw their worst decline ever in March as they tumbled 23 percent each, dragged by the new coronavirus pandemic and concerns regarding smaller private banks. The previous biggest drop came in March 1993 when Nifty 50 fell 19.6 percent. For sensex, it happened in 2001 when it fell 15 percent.
The following chart represent a composite analysis of the Covid-19 Lockdown condition compiled by Business Standard Daily:
- Good signs, looking forward:
Initial numbers seem to indicate the economy is on the mend as the lockdown lifts, but it is unclear if demand will hold up as unemployment, pay cut, etc. might dismay the market. However, as the restrictions in certain segments are gradually lifted up the unemployment level is started improving.
- 21 million job added in May after a sharp decline in April (CMIE).
- Auto sales (domestic) up in May from Zero in April.
- Electricity consumption surges: 2,700 million units in April :: 3,700 million units as on May 27.
- FMCG show rise in sales: 8 – 9% growth in May over April (Industry estimate)
Movement of goods, which shrank sharply in March and April, picked up in May, in line with the relaxations. Traffic congestion, power generation, port activity, vehicle registration and other high-frequency data point to the economy perking up as India reopens, recovering from a devastating slump as factories went idle and people were ordered to stay at home amid the coronavirus pandemic.
Foreign direct investment into India rose 13% to a record $49.97 billion in FY20 from $44.36 billion a year earlier, official data released on May 28 showed. FDI inflows were $13.2 billion in the quarter ended March.
In less than seven weeks, Jio Platforms has managed to seal eight massive deals. Through these fundraising transactions, the digital unit has amassed Rs 97,885.65 crore from some of the world’s top leading global investors like Facebook, Silver Lake, Vista Equity Partners, General Atlantic, KKR, Mubadala and ADIA.The flurry of deals marks the largest continuous fundraising activity by a company in the world.
Fitch rating said that after a contraction in the current financial year, India’s economy is expected to bounce back with a sharp rate of 9.5% next year, provided it avoid further deterioration in financial and health sectors.
Even though the recovery will be slow, India always had a track history of bouncing back.