India Economic and Business

Outlook
April 30, 2020
India’s economic recovery will be postponed
due to the COVID-19 outbreak
Short-term disruptions will have significant Drivers
economic ramifications Consumer
Component contribution to growth, % YOY Investment
10%
Spending
8% Negative Negative
6%
4%
Government
2% Exports
Actions
0%
Slightly
-2% Negative
positive
-4%
-6% What to Watch
2018 2019f 2020f 2021f
• Degree of spread of COVID-19 cases
Consumer Spending Gross Domestic Investment • Efficacy of national lockdown and
Government Spending Exports of Goods and Services testing
Imports of Goods and Services Gross Domestic Product • Government stimulus measures in
response to the COVID-19 outbreak
Scenarios will help executives in India align
internally and pressure test assumptions

BASE CASE: Economic growth falls sharply DOWNSIDE: The economy contracts in 2020

Lockdown measures extend well into June in

Outbreak and Additional nationwide lockdowns extend well
major economic hubs. Cases largely contained
containment into Q2. Containment extends into Q4.
in Q2, with spillover into Q3.

Extremely limited government stimulus triggers

Government Fiscal stimulus falls is unable to offset the
long-term structural damage and leads to a
stimulus economic damage of the pandemic.
severe banking crisis.

Significant weakness in Q2 and Q3. Consumers Consumption, private investment, and

Domestic
and businesses delay non-essential spending manufacturing fall sharply through 2020, with
economy
and investment until 2021. continued weakness in 2021.

External trade is severely impacted through Q3 Significant trade disruptions through Q4 2020
External trade
2020. due to prolonged global containment.

Likelihood: 60% (High) Likelihood: 25% (Low)

Growth
2020 growth: 0.3 to 0.8% 2020 growth: -5.0 to -5.5%
India’s economy will continue to face
significant challenges through 2020

Executives should plan for a significant shock to investment in Q2 2020

Quarterly GDP and gross domestic investment growth and forecasts, Real %YOY

5.6 5.1 4.7

4.2
2.8 3.0

1.0

-5.8
Apr- Jun Jul- Sep Oct- Dec Jan- Mar Apr- Jun Jul-Sep Oct- Dec Jan- Mar
2019 2019 2019 2020f 2020f 2020f 2020f 2021f
Businesses in India will face significant supply,
demand, and financial disruptions in 2020

Our current timeline assumptions see the worst of the COVID-19 impact in Q2 2020
Expected timeline of recovery

China production India deals with the

& consumption India goes into Some sectors get back aftermath of the
freeze lockdown to work pandemic

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Supply chain disruption

from trade channel Demand-side pressures continue

Domestic supply chain disruptions

Severe strain on finances

5
The highest COVID-19 case counts in India
are concentrated in major economic hubs

The richest cities and major manufacturing centers are the worst-hit by COVID-19
Number of confirmed COVID-19 cases in major cities as of 20 April

Chandigarh
79
Delhi NCR
Jaipur 2635 Lucknow
585 164

Ahmedabad Kolkata
1248 26
Indore
841
Mumbai UA
2916 Pune Hyderabad Number of cases in states
591 486
>1,500
Bengaluru 1000-1500
100
Chennai
Kasaragod 308 500-999
169 Kochi <500
24
B2B VERT Poll: Which of the following will most
significantly disrupt your India business in 2020?

33%
A. Factory shutdowns /
production halts
27%
B. Shortages of key inputs
C. Lack of demand

% of respondents
20% 20%
D. Logistics / movement of
goods
E. Payment delays
F. Competitive pressures
G. Personnel management
0% 0% 0% 0%
H. Other
A. B. C. D. E. F. G. H.

n=15 7
India’s manufacturing slowdown is visible
across the different sectors
Manufacturing activity in India has been extremely weak, contracting sharply across
different sectors since the middle of last year
Sectoral breakdown of the index of industrial production, %YOY
15
10
5
0
-5
-10
-15
-20
-25
-30
Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20
Chemicals and chemical products Rubber and plastics products Electronics
Machinery and equipment Motor vehicles and trailers Pharmaceuticals

8
The nationwide lockdown has put additional
downward pressure on production
Factory shutdowns and supply chain disruptions have put significant pressure on
production activity, capacity utilization, and overall business sentiment in India
RBI’s Industrial Outlook Survey of the Manufacturing Sector, % net responses
26
22
16
13

-35 -38
-42 -40

Overall business situation Order books Production Capacity utilization

Before 20 March After 20 March
A large share of bad loans is making banks
risk-averse and limiting credit growth
A large share of stressed assets are
concentrated in India’s industrial sector,
which struggles with low earnings
Gross non-performing assets ratio by sector
Companies in the industrial and service
sectors will operate in a tight credit
environment
Deployment of bank credit by sector, % YOY

17.3%
16.90%

9% 8.90%
6.3%
6.50%

1.8% 2.50%

Aug-19
Jun-19
Feb-19

Sep-19
Oct-19
Apr-19
Mar-19

Jul-19

Dec-19
Jan-19

May-19

Jan-20
Nov-19
Aggregate Industry Services Retail
Agriculture Industry
Sep-18 Mar-19 Sep-19 March-20f
Services Personal loans

10
COVID-19 will exacerbate the financial
challenges faced by the private sector in India
Even in normal circumstances, payment
cycles are long and unpredictable
Survey of 119 SMEs on how long customers
take to make payments, % of respondents
Within 15 days 9%
Within 30 days
12%
Large players in the private sector will
remain challenging customers
Survey of 119 SMEs on customer segments
they find difficult to recover dues from, % of
respondents
5%
8%

42%
Within 45 days 10% 21%

Within 60 days 22%

24%
Unpredictable 44%
Large private sector firms Government
Others 3% SMEs MNCs
Others
B2C VERT Poll: What is the most urgent priority
for your India business in the next 6-8 months?

A. Protecting against working

capital and liquidity issues 44%

B. Examining and reducing our

costs
C. Reassessing our product

% of respondents
portfolio
D. Investing in our digital channel 22%

E. Developing our sales

teams’/distributors’ capabilities
11% 11% 11%
F. Segmenting our customers
G. Reprioritizing our geographical
focus (states/cities) 0% 0% 0%

H. Other A. B. C. D. E. F. G. H.

n=9
COVID-19 will impact most industries in India,
though the recovery will be uneven

Quarter
1 2 3 4
Healthcare
(Medical devices)
Manufacturing

Consumer staples
Construction/
Infrastructure
Heavy machinery

Consumer durables

Automotive

Substantial Mixed / Converge to pre-outbreak

disruption Recovery begins levels
Five strategic priorities for executives to
outperform in India in 2020

Use scenarios to align internally and undertake contingency

planning

Monitor subnational-level lockdown measures

Protect against working capital and liquidity issues

Identify resilient sources of demand and competitive

advantages
Adapt to the slowing market by increasing the effectiveness
of your local sales teams
THANK YOU
This concludes our presentation. Today’s presentation was prepared by
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