The economic impact of COVID-19 on

different sectors in India.

Introduction
The outbreak of Corona virus has seriously affected businesses across the globe which
are operating in fear of an impending collapse of global financial markets. The impact of
this situation will be longstanding causing collapse of some while generating new
opportunities of others. The world will see major disruptions in how businesses will
operate in future taking into consideration the negative effects of globalization and
overdependency of global value chains on few countries like China.

Looking at the exponential growth of COVID-19 all over the world and foreseeing such
impact on India’s densely populated 1.3 billion people India took timely decisions to first
restrict travel and eventually the country went into complete lockdown on March 25,
2020, the largest and harshest in the world, restricting 1.3 billion people. While the
lockdown, now extended till May 17, 2020 (54 days) has helped the country to mitigate
the overwhelming growth of the virus, it has shaken the economy leading to major
slowdown.

Sectors like travel & tourism, hospitality, automobiles, finance and real estate and
professional services are estimated to be hardest hit by the coronavirus (COVID-19)
epidemic in India between April and June 2020 compared to the same period in 2019.
Comparatively, sectors like pharma and IT are in a better position.
India's quarterly GDP was estimated to a decline of over nine percent between April and
June 2020. This was a decrease from a five percent growth in the beginning of
2020.These estimates are after considering the government's aid package
announcement of 1.7 trillion rupees.

In this report I will try to briefly analyse the impact of COVID-19 on below sectors-

 freight and logistics

 Consumer and retail
 Construction and real Estate
 Agriculture

% GDP Employment bank % Impact on revenue

Sector Contribution in millions credits due to COVID-19
Freight and logistics 8% 22 2% -40 to -45%
Consumer and retail 11% 47 11% -20 to -25%
Construction and real Estate 8% 54 11% -50%
Agriculture 15% 205 18% -15%
I have chosen these sectors considering their contribution to the GDP, the size of
employment they provide, effect of COVID 19 on them and their bank credits or debt-
service-coverage ratios. The numbers in below table gives an overview of the importance
of these sectors-
 Impact on Agriculture
 Challenges
Agricultural activities being under the essential services are exempted from lockdown. It
will facilitate unhindered activities related to agriculture and farming so as to ensure
essential supplies and farmers do not face any difficulty during the lockdown.

But the biggest challenge comes from lockdown-induced break in the food supply chain.
Initially many farmers faced difficulty in transporting their supplies to markets due to
restrictions and fear. Reports of vegetables rotting in wholesale markets and farmers
burning harvests during the lockdown have surfaced.

The other problem being faced by farmers is the migration of workers. There was
unavailability of labourers to help with harvesting, procurement, and marketing. Also,
there was lack of gunny bags and farmers don’t have adequate storage facilities. Due to
overcrowding, lack of social distancing at mandis and inadequate availability of labour,
many mandis were not able to operate normally. Thus, the crop was being sold in retail
at prices that are below the minimum support price.

All these have led to wide variation in prices across states.

 Return – when and how

Considering the importance of this sector and the workforce affected, the Centre and
various State governments have announced a slew of measures to overcome these
constraints.

Firstly, many governments like Punjab have started procurement operation going as
quickly as possible by government procuring directly from farmers. Also, now most
mandis have returned back to normalcy taking adequate safety measures.

Secondly, important measure involves direct cash transfers to cover not only the farmers
but also landless agricultural labourers who migrate seasonally and many of whom have
now returned home. The government has initiated immediate transfer of first instalment
of Rs 2,000 under PM-Kisan scheme in the first week of April for 87 million farmers.

Finally, the government and banking system must ensure better credit flow in time for
the next cropping season. Banks must not hesitate on giving loans to farmers and must
be quick in providing loans through the Kisan Credit Card (KCC) mode.

Thus, the agricultural sector is one of the first sector which is showing signs of coming
back to normalcy and will see minimum impact of the virus as compared to others.

Impact on Freight & logistics

 Challenge
The sector is one of the hardest hits due to corona virus. Inter-country shipment of
goods has completely stopped with global border sealed and entire supply chain affected.
The sector shows no signs of a restart until the pandemic is under control.

Initially in the month of January 2020, many businesses which get their supply of raw-
materials, parts or finished goods from China went out of stock leading to a search of
new partners in different regions. But soon the virus spread to more than 100+ nations
and all the nations closed their borders.

But as India went into complete lockdown, the supply chain got a big jolt. Supply chain
completely relies on manpower and it is the backbone of logistics. There is an absence of
manpower and the supply chain completely relies on it and as it is the backbone of
logistics. Daily movement of trucks has collapsed to less than 10% of normal levels.
Orders lay pending as factories, companies, and warehouses are shut as required by the
lockdown. For some, there is loss in production while for others the inventory is piling up
in factories. Also, many businesses were unable to access the demand in this situation.

 Return – when and how

As the businesses have partly resumed work after 3rd May, 2020, they will have to focus
on pending orders along with the new ones. Clearing the inventory as quickly as possible
should be the first step. Working with limited resources should be managed by efficient
resource utilization. There has also been a lot of new hiring in this sector for transport
and delivery of goods.

Bank credits are minimum in this sector and most of the business is carried on credit
cycle from suppliers to retailers. But in the view of the current situation banks can step
up and make use of the low lending rates to rebuild the economy.
The Indian Railways is stepping up and can serve on some sectors. A quick way to build
last-mile transport capacity would be to partner with e-commerce companies.

Apart from transportation of goods from factories to markets, increased demand from
consumers to deliver the required items at doorstep has been witnessed. This demand
should also be considered.

Impact on Consumer and retail

 Challenge
The industry has more than 15 million retailers, including big and small, traditional and
modern trade. Retail employs 40-50 million Indians directly and contributes to around
40% of India’s consumption and 11% of India’s GDP.

The impact on this industry starts from early March when initially malls and shops saw
low footfall of customers due to fear of COVID-19. That followed by shutting down of
malls and eventually all shops were shut when the country went into lockdown. Only 7-
8% of the retail industry could function under the lockdown, who were only selling
essential goods. All the shops of those selling non-essential goods such as garments,
electronics, mobile phones, furniture, hardware, etc., are closed.

There are numerous small retail players who have witnessed complete revenue loss and
loss of jobs. There are lakhs of daily wage workers working in shops who have either lost
their job or have seen pay cuts.
  Return – when and how
Survey done by Retail Association of India shows that around 80,000 jobs are in threat
and it could take around 9-12 months for the industry to recover.

About 85 percent of the retail costs are fixed costs, which is putting several financial
pressures on retailers. While there are in store inventories left, the consumer demand is
slowing up. The industry is facing severe liquidity challenge.

The government should support the industry by providing low interest loans and stimulus
for working capital needed for the retailers. There should be relief on GST and taxes for
them to get back to business. Banks must help the industry extending moratorium on
short term and corporate loans and charge minimum interest.

Retailers must try to cut bad costs and focus on a minimum cost model. As the lockdown
3.0 allows purchase of non-essential goods retailers should partner with delivery firms
and e-commerce platforms to keep the revenues and cash flowing.

Impact on Construction and Real Estate

 Challenge
India’s real estate and construction sector contributes to around 10% of its GDP and give
employment to more than 50 million workforce. The sector already facing multiple
challenges like regulatory burden of laws, multiple frauds and lack of capital and
concerns like weak demand.

All the construction activity came to a halt after lockdown was announced. This led to
reverse migration of construction workers to their villages due to fear of lockdown
extension and loss of jobs. Even if the construction activity resumes from May, 2020,
with some restrictions in place, there are many challenges like shortage of raw material
and labour. It is really going to be a challenge for the tier-2 & tier-3 developers who
have made borrowings at a substantially higher interest rates, who are cash deprived
and whose sales have been declining steadily over the past FY. They are sitting on huge
unsold stocks and have no other option than to lower the housing prices. There are
possibilities of breach of contracts due to unavailability of credit/working capital and
possibilities of not completing the projects on time.

Also, there is fear of permanent transformation in workspace requirements due to the

work from home facility led by corona virus. Recently IT major TCS asked 75% of its
employees to permanently work from home. If successful, the need of workspace
requirements would minimize in future for sectors like ITeS/IT, BFSI and consulting.

 Return – when and how

The first step is to evaluate the contract clause(s)to ascertain the extent of liabilities
upon breach of contracts and possibilities of government allowing the force majeure
clause to skip penalties over project delays. Many developers expect demand to pick up
soon more deep interest rate cut on top of what the Reserve Bank of India has cut
lending rates by 75 basis points last month.

The government needs to “give oxygen” to the industry by giving it access to cheaper
funding or delay liabilities by a year. Lower returns in mutual funds and a short dip in
housing prices would also attract demand in this sector.
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