20 May, 2020 I Economics

Road to Recovery: Crystal

The Covid-19 led national shutdown since 25 March’20 and the
Ball gazing resultant halt to commercial activity has severely dented the prospects
of the Indian economy. All sectors of the economy have been
Contact: impacted, with varying degree of severity. A large number of sectors
Madan Sabnavis
across regions have not witnessed any activity for over 2 months as
Chief Economist
madan.sabnavis@careratings.com states across the country have been in various stages of lockdown since
91-22-6837 4433 early March’20.

Authors: Last week, the central government announced a special economic

Economic Research
package to stimulate the Indian economy. Most of the measures
Kavita Chacko announced were in the nature of medium to long term reforms for
Dr. Rucha Ranadive various sectors and the direct central government expenditure outgo
Sushant Hede or stimulus in the current fiscal year has been limited. In fact the focus
has been inclined towards the supply side to provide an impetus to
Industry Research activity in the medium term. The demand side focus has been more
Darshini Kansara towards relief rather than any changes in the tax structure or
Bhagyashree Bhati
Vahishta Unwalla
announcement of capex spending. This has been considered when
Urvisha Jagasheth taking a view on the possible course of the economy including the
Rashmi Rawat headline GDP growth number.
Ratings Team
There has been some easing in restrictions on conduct of commercial
Ajay Dhaka
D Naveen Kumar activity in some regions in recent days based on the containment of
Divyesh Shah the spread of the virus and the subjective view of the state
Hardik Shah government. However, the resumption of activity there has been
Hitesh Avachat limited and prone to uncertainties and will take time to move towards
Karthik Raj
Krunal Modi normal.
Nitesh Ranjan
Pulkit Agarwal We have attempted to chart the likely road to recovery for the Indian
Radhika Ramabhadran economy after the lockdown. This includes revisiting our estimates for
Rajashree Murukute
overall economic growth for FY21, the fiscal implications for the
Sharmila Jain
Sudeep Sanwal government and the likely liquidity scenario. We have also put down
Vidhyasagar the expected recovery path for certain key industries based on the
Ujjwal Patel evolving conditions.

Mradul Mishra (Media Contact)

mradul.mishra@careratings.com Economic recovery is expected to be slow and prolonged and vary
91-22-6837 4424 significantly across sectors. Sectoral improvements are expected from
Q3 FY21 onwards though reaching the pre-lockdown normal would
probably get extended into FY22.
Disclaimer: This report is prepared by CARE Ratings Ltd.
CARE Ratings has taken utmost care to ensure accuracy
and objectivity while developing this report based on
information available in public domain. However, neither
the accuracy nor completeness of information contained
in this report is guaranteed. CARE Ratings is not
responsible for any errors or omissions in
analysis/inferences/views or for results obtained from the
use of information contained in this report and especially
states that CARE Ratings has no financial liability
whatsoever to the user of this report.
 Economics: R2R

Downward revision in GDP growth estimates

Based on a best case scenario i.e. of the easing of the lockdown from May’20 and a gradual return to normalcy, we had in
late April’20 estimated India’s GDP growth for FY21 at 1.1-1.2%, with a downward bias. Based on the evolving approach to
the pandemic with there being multiple extensions of the lockdown, uncertainty surrounding the post lockdown scenario is
palpable. Also, there were certain expectations of a stimulus from the government which has assumed a different structure
with focus on the supply side with limited demand generating measures. There are some signs of opening up in some states
which do offer hope of the nation being prepared to live with the virus and gradually ease curbs on economic activity. But
states like Maharashtra which is a prime driver of the economy could take more time to allow such flexibility. Further
extensions of the lockdown cannot be ruled out. Hence, we are further fine-tuning our economic growth projections for
FY21.

Several recent high frequency economic indicators point to a severe contraction in the overall economy since the imposition
of the lockdown. Even though the central government has announced a special economic stimulus package, the measures
here are mostly in the nature of reforms which would work over the medium to long term. It does not provide immediate
relief for sectors affected by the pandemic nor does it provide for a demand boost in the near term. We are thus now less
optimistic of recovery in current fiscal and as a baseline scenario expect GDP to contract by 1.5-1.6% in FY21.

Table 1: FY21 GDP growth: Revised estimates

FY21
Sector
Earlier Estimate Revised Estimate
1. Agriculture, forestry & fishing 2.5 2.5
2. Mining & quarrying -2.0 -3.0
3. Manufacturing -3.0 -7.0
4. Electricity, gas, water supply & other utility services 2.0 0.0
5. Construction -4.0 -8.0
6. Trade, hotels, transport, communication and services related to
broadcasting 2.2 -2.0
7. Financial, real estate & prof services 0.5 -3.0
8. Public Administration, defense and other services 10.0 10.0
GVA at basic prices 1.4 (-) 1.3
GDP 1.1-1.2 (-) 1.5-1.6
Source: CARE Ratings’ calculation

Sector-wise GDP forecasts:

Agriculture and government sectors will statistically provide an upward thrust in FY21 while other sector could be
pressurized.
• Agriculture sector growth has been retained at 2.5%. Essential items like food grains were out of the purview of
lockdown restrictions. Further, the prediction of a normal monsoon is expected to bode well for Kharif crop output.
• The mining and quarrying sector will be under pressure and is expected to further contract by 3% than our earlier
estimate. Labor shortages are also expected to weigh on the production in this sector.
• The manufacturing sector is expected to contract further by as much as 7% than the earlier estimate of 3% de-growth
due to the extension of the lockdowns in most regions and the limited easing in some. The labor shortages would
further exacerbate their condition. The expected special boost to capex by the government has not yet been
announced which will come in the way of growth of related industries.

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• The electricity sector will see a zero growth in FY21 as against the 2% estimated earlier as the demand for electricity
has been adversely affected by the shutdown, viz by the commercial and industrial segments. Domestic demand
would be higher but will not be able to compensate for the other two segments.
• Construction and real estate sector both are expected to witness a further dip. A major challenge will be getting labor
back on board and completing ongoing projects. The construction sector will see further de-growth of -8% in FY21.
• Financial services would grow at a positive rate though demand side issues would hold back growth. The credit flow
to NBFCs has received a boost in the package and the details are awaited which would give an indication of the actual
flow of funds to this sector. The real estate which has higher weightage in this component and would witness a
decline in growth this year. Thus, we are revising our forecast of growth for the financial and real estate sector from
0.5% to a decline in growth by 3% during the year.
• Government expenditure could be the driving sector as there would be around an additional Rs. 80,000 expenditure
as under special economic package being announced by the government. Thus, the growth for the sector has been
retained at 10% for FY21.

On the expenditure side, the demand will be low with employment being a challenge. The investment will be subdued as
there is a surplus capacity and government attention will be more on relief than CAPEX. The private sector will focus more
on completing projects than going in for new ones. Foreign trade will be depressed given recessionary conditions in most
countries. These estimates would be in for a review during the course of the year depending on the way the shutdown ends
and whether or not there are any further policies announced by the government.

Fiscal Position

The central government finances are expected to be pressured in FY21 on account of revenue shortfalls owing to the
restriction on economic activity and an increase in government spending towards relief measures. The constrained financial
position of the government has prompted an increase in the government’s market borrowing program by Rs 4.2 lakh crores
to Rs. 12 lakh crores for FY21. Even though the details of the government’s financing of additional expenditure provided for
in the special economic package has not been detailed, by factoring the likely revenue shortfalls and increased expenditure
in FY21, we estimated the central government’s fiscal deficit to widen to around 7% of GDP in FY21 as against the budgeted
3.5% of GDP. Here it is also reckoned that the denominator of GDP in nominal terms will be lower by around Rs 10-11 lkh
crore.

Likely revenue shortfalls and higher expenditure in FY21: Central Government

• Tax revenue shortfall of around Rs 2.9 lakh crores owing to lower collections of corporation tax, personal
income tax, GST and customs.
• Rs. 1 lakh crores shortfall in disinvestment proceeds (from budgeted Rs.2.1 lakh crores)
• Lower estimated profits for public sector undertakings in FY21 and measures taken by the RBI to disallow
public sector banks from dividends payments (based on profits in FY20) could result in lower dividend
payout to the government by around Rs 50,000 crs in FY21.
• Additional government spending is estimated to be Rs 2.7 lakh crs (Rs 1.92 lakh crs for PM Garib Kalyan
Yojana and allocation to health sector and Rs. Rs 80,000 crs related to the 5 tranches of the special
economic package)

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Table 2: Estimated fiscal deficit of the Central Government

Particulars Amount
Estimated revenue shortfall (A) 4,37,379
Shortfall in tax revenues 2,87,379
Shortfall in disinvestment 1,00,000
Shortfall in dividends 50,000
Estimated additional spending (B) 2,72,000
Impact of fiscal deficit (A+B) 7,09,379
Fiscal deficit in FY21(BE) 7,96,337
Likely fiscal deficit in FY21(BE) 15,05,716
Estimated Nominal GDP (Rs lakh crs) 2,13,56,415
FD/GDP (%) 7.1
Source: CARE Ratings’ calculation

As per the economic package, the market borrowing norms of state governments have been relaxed in order to finance the
fiscal deficit of the state. There are 16 states which have their fiscal deficit below 3% of GSDP in FY21, allowing them to raise
around Rs 1 lakh crs of additional market borrowings to reach the 3% target. Assuming the complete utilization of the
unconditional relaxation of 0.5% allowed to the states (over the 3% target), there can be additional market borrowings of
another Rs 1 lakh crs from 23 states. Therefore, there can be a cumulative additional market borrowing of around Rs 6 -6.5
lakh crs (Rs 4.2 lakh crs by centre and Rs 2 lakh crs by states). The cumulative fiscal deficit of centre plus states can widen to
around 10.5-11% of GDP.

The surplus liquidity in the banking system (currently at Rs. 5 lakh crores) could help absorb the additional market borrowing
of the state and central government. Additionally, there could be support provided by the RBI through OMOs and term repo
operations to assuage liquidity. As bank credit growth will remain subdued the surplus funds in the system (deposits minus
credit) would be able to meet most of this additional requirement.

Banking system not to be constrained by liquidity

To mitigate the tightening of financing conditions following the shutdown and to make available to banks adequate liquidity,
the RBI announced the targeted long term repo operation (TLTRO) scheme to infuse long term liquidity into banks through
auctions carrying specific stipulations along with a cut in interest rates, reduction in CRR (cash reserve ratio) and increase in
borrowing limit under the MSF (marginal standing facility). It also provided for a special liquidity facility for mutual funds
(Rs.50,000 crores for 90 days). Even before the lockdown, since February’20, the RBI was adding long term liquidity into the
banking system through long term repo operations (LTRO) to facilitate the flow of credit to businesses and the broader
economy and to improve the transmission of interest rate cuts.

Under the TLTRO, the RBI has announced a total infusion of Rs.1.5 lakh crores of which Rs. 1.12 lakh crores has already been
availed by banks. Of the Rs. 2 lakh crores announced under LTRO, banks has so far availed 1.25 lakh crores and only 5% of
the special liquidity facility for MF has been used.

The banking system has witnessed considerable increase in liquidity (touching record high of Rs.8 lakh crores on 5 May’20)
following the RBI measures of the last 2-3 months. This however has not led to a commensurate increase in credit offtake
from banks. It has in effect added to the pre-existing liquidity surplus in the system which has been sustained by banks deposit
growth surpassing the credit growth since early FY20 owing to the slowdown in the economy. Bank credit growth on a year-

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on- year basis as of 24 April’20 at 6.7% was nearly half that of year ago period. On the other hand bank deposits have grown
at a stable rate of 9.8% (y-o-y).

There could be an increase in bank credit offtake in the coming quarters. Businesses as well as the retail segment who have
been faced with cash flow issues due to the shutdown are expected to seek bank funding. The credit guarantee provided by
the central government for lending to MSMEs, NBFCs, HFCs and MFIs in the special economic package too could stimulate
bank credit offtake. Further, banks have been told to increase the working capital limits of borrowers by 10% which will help
the SMEs in particular. There may however not been a sizeable increase in bank credit growth during FY21 given the
underlying risk aversion of banks to lend on fears of the lending turning bad in the future. Businesses too would not want to
add to their liabilities given the bleak and uncertain economic prospects. Bank credit growth for the year can be expected to
5-6%. Bank deposits on the other hand are expected to see a steady growth of 8-10% in FY21 given the Covid19

led turmoil in the financial market that has increased the preference for bank deposits. Bank deposit growth would continue
to surpass bank credit growth in FY21. The liquidity surplus in the banking system is thus likely to be sustained in the coming
months. The RBI could cut interest rates further by another 40 bps during the year with the aim of making available funds at
lower costs. Additionally, to ease the financing conditions of the sectors most affected by the pandemic, the central bank
could announce sector specific TLTROs to the tune of Rs. 1 lakh crores.

Bond yields will remain stable against this background. It may be remembered that the RBI had issued the 5.79% 10-year
appear to bring down the benchmark yields which had been quite intransigent above the 6% mark despite the announcement
of the liquidity enhancing measures. The market has not been particularly moved by the economic package indicating thereby
that the supply of funds would be adequate to meet the borrowing from both the centre and state governments. We may
expect the 10-years yield to be in the 5.75% range in the absence of any new shock or announcement from either the RBI or
government.

(Authors: Kavita Chacko, Dr Rucha Ranadive and Sushant Hede)

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Sector -wise scenario and recovery path

The prevailing sector-wise scenario and the likely recovery path has been highlighted in table 3 and 4 below. Most sectors
are faced with issues of labour, liquidity, logistics, low demand and capacity utilization and could see a gradual recovery from
Q3 FY21.

Table 4: Sector-wise scenario

The table below looks at how various industries are positioned today against certain challenges which are related to labour,
liquidity, logistics, capacity utilization and inventories. These are the broad headings which indicate whether a sector is well
positioned right now. A tick mark indicates that the variable mentioned is a challenge for the sector while a cross shows that
there are no problems vis-à-vis this parameter. Hence the pharmaceuticals industry does not have any of these challenges
and is in a relatively better position than the others.
Labour Liquidity Logistics Lack of demand Capacity Utilisation Inventory

Aluminium
Auto NA
Aviation NA NA
Cement
Consumer Durables NA
Drugs & pharma NA
Retail - essential goods NA
Gems & Jewellery NA
Hospitality & Tourism NA
Hospitals NA
Media & Entertainment NA NA
Retail - non-essential goods NA
Oil & Gas
Power NA
Ports NA NA
Real Estate NA
Road-Construction NA
Steel
Textiles NA

Mark in the table suggest the particular problem prevails for the sector and is the absence of the problem
NA is not applicable

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Table 4: Sector-wise recovery path

Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21
Retail – Essential
goods
Power

Drugs & Pharma

Aluminium
Hospitals
Real Estate
Road-Toll
Media &
Entertainment
Consumer Durables
Cement
Oil & Gas
Road-Construction

Textiles
Steel
Retail-Non Essential
goods
Ports
Auto
Gems & Jewellery

Hospitality &
Tourism
Aviation

Towards Recovery Partial Recovery Stressed

The chart above provides a view on when we could expect a recovery in these sectors. The colours are self-explanatory and
the prolonged shade of red does not augur well for the sector. The yellow shade talks of a less than normal tough stable path
while green may be viewed as being closest to normal. The view on power should be viewed with caution as the green shade
representing the sector is more due to the household demand which is unchanged if not increasing as work from home had
been the order. However, commercial and industrial demand which actually provides more revenue as they subsidize
household consumption is down presently.

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1. Aluminium

Aluminium demand is expected to have weakened due to the Pandemic. Production is unlikely to have witnessed a sharp fall
due to essential nature of the industry and demand from pharma sector to have lend some support. Downstream demand
for aluminium from auto, aerospace and power transmission sector has been subdued. Aluminium exports have seen a pick-
up in absence of domestic demand. We expect domestic demand to return from H2FY21.

Author: Rashmi Rawat Inputs by: Hitesh Avachat

2. Auto - to continue to remain under pressure – till August 2020

• to witness marginal recovery on a m-o-m basis starting from September 2020 and continue in Q3 FY21 (some respite
led by festival demand)
• further recover but remain under pressure Q4 FY21
• Automobile industry continues to face concerns in terms of labour, logistics, liquidity as well as inventory. As the
lockdown gets lifted in a phased manner, public transport is expected to be one of the last ones to be opened up.
More than these restrictions, change in consumer behaviour towards owning his/her vehicle migrating away from
public transport could likely generate some demand for two wheelers as well as small passenger cars in the country.
• While major OEMs have announced restarting of their plants, the supply chain till the last mile component
manufacturers will need to come on stream. Having faced with disruption, small scale component manufacturers
may have their own challenges to reverse gear immediately. Fiscal needs and labourers are seen as immediate
challenges which could limit their ability to ramp up quickly. Meanwhile, dealerships in red zones are not allowed to
open shops as the lockdown continues. Arguably, the sector is caught in a slow lane and will take time to get things
in order.

Author: Darshini Kansara Inputs by: Karthik Raj

3. Aviation

The aviation sector not expected to fully recover in the current fiscal year and it expected to be in the red till December 2020.
Even post the lifting of India’s lockdown, passenger growth will face a sharp contraction considering the inhibitions of
travelling anywhere till the pandemic scare has been settled fully in the domestic regions and internationally especially on
certain routes. Countries including India will not be issuing visas anytime soon fearing the rise of any exigency with the entry
of foreign nationals.

Recommendations

In its mega stimulus package announcement the government proposed a slew of measures which will aid the aviation sector
in the long term but Indian airlines are still seeking a comprehensive bailout package which will aid the beleaguered industry
considering the entire fleet is grounded and unable to operate which is resulting in the airlines incurring heavy losses.

The government will need to intervene in order to provide aid maybe in the form of

- Rationalization of fuel VAT across states as against different VAT rates prevailing at each state. OMCs can also extend
unsecured interest free credit terms to airlines.
- Grant 100% waiver on existing Airport Navigation Services (ANS) charges for the duration of COVID-19.

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- To grant aircrafts waiver on parking and housing charges and landing charges post the lifting of the lockdown for a
2-month period.

Author: Urvisha Jagasheth Inputs by: Vidhyasagar

4. Cement

Given the weakness in end user demand due to the lack of activity in the housing and infrastructure sector the cement
industry is expected to remain in the red zone till October 2020 at least, till the end of the monsoon season. Partial recovery
is expected November 2020 onwards and normalisation of operations post January 2021 onwards.

Author: Urvisha Jagasheth Inputs by: Radhika Ramabhadran

5. Drugs & pharma

The operations of pharma industry being considered necessary came under the ambit of essential manufacturing. This has
kept production activities at many pharma companies largely unaffected. Also various relaxations given in the third phase of
lockdown is believed to have supported the operations of pharma companies. During the period of lockdown, while the
domestic market for antibiotics, cold and cough gained traction, demand from segments like women healthcare and
orthopaedic is impacted as the treatment for such ailments are believed to have been kept on hold. Also, inbound logistics
constraints may restrict the movement in exports to an extent. Thus these factors will continue to keep the pharma industry
in neutral zone for the month of June 2020.

Following this, the industry is expected to enter in green zone July 2020 onwards as easing of restrictions will pick up pace in
India thus allowing movement of goods and people which will aid the flow in exports. Also, the industry will see pent up
demand for treatments that were postponed which will further support the demand for drugs. Moreover, the demand for
medicines will increase during the monsoon season as the distributors and retailers normally stock drugs for the season.
These parameters will augur well for pharma industry.

The manufacturing activities of pharma industry being considered essential continued even during the lockdown though
some pharma players were operating at suboptimal capacity in the initial days of lockdown. This was primarily due to shut
down that affected the movement of labour and disrupted logistics activities during the first few weeks of the announcement.
However with the pharma industry being considered essential and subsequent easing of restrictions for the industry
prevented the pharma companies from labour shortage and logistics issues to an extent. Also, ongoing operations in the
industry have restricted any major liquidity problems for the industry. The demand for drugs and pharma remains steady to
a large extent and the level of operations continues to pick up pace.

Author: Bhagyashree Bhati Inputs by: D Naveen Kumar and Krunal Modi

6. Gems & Jewellery

In the Covid-19 scenario, most units of the gem and jewellery industry were brought to a halt with nil or limited operations,
as workers faced restrictions on traveling to work stations. With a nation-wide lockdown, jewellery retailers had temporarily
shut shops, which impacted domestic demand and thereby sales. High gold prices also added to the woes. Along with this,
exports of most items of gems and jewellery such as cut and polished diamonds, gold and silver jewellery, etc. also witnessed
a fall as key markets such as USA, Europe, China, Hong Kong were fighting with outbreak of Covid-19.

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In terms of liquidity, the industry is grappling with restrictions on availability of bank credit since over 2 years now, after the
serious irregularity by one of the largest players of the industry came to the fore in January 2018. Since then, incremental
bank lending to gems and jewellery industry has consistently declined. In the Covid-19 situation, sourcing working capital for
funding of daily operations is an even bigger concern.

The gems and jewellery industry continues to face hurdles in the form of high custom duty on key commodities, continuous
fall in exports and restrictions on availability of bank credit. To add to this, recent outbreak of Covid-19 in top consuming
markets including USA, Europe, China, Hong Kong and other south-east Asian nations has worsened the situation further for
players operating in this industry. The situation remains grim at least till Q2-FY21. We could expect recovery Q3-FY21
onwards, owing to limited or nil lockdown in the country and globally. Q3-FY21 also marks the start of auspicious festivals
and wedding season which will uplift domestic jewellery demand. Export orders are also expected to retrieve during this
time. However, full recovery of the gems and jewellery is still distant and not in visible until FY22.

Recommendations:

With a nation-wide lockdown, the gems and jewellery industry is facing hurdles with virtually no footfalls in their jewellery
stores. At the same time, exports have largely come to a standstill. Considering the crisis scenario, gems and jewellery
industry, which is one of the largest employers in the country, has sought immediate relief measures from the government
to address liquidity issues.

1. A stimulus package from government for meeting operating expenses, most essential of which is payment of
salaries of workers.
2. Reduction in interest rates of loans and extension in payment of interest amount till September 2020.
3. Defer GST returns and extend time limit for filing GST returns.
4. Reduce custom duties of essential gems and jewellery items to 4%.

Author: Vahishta Unwalla Inputs by: Ujjwal Patel

7. Hospitality & Tourism

To remain under pressure for 9M FY21, marginal domestic movement expected in Q4 FY21. FTAs minimal or negligible for
FY21. With the continued lockdown and travel restrictions in the country along with a halt on hospitality services, demand,
logistics, labour and liquidity is expected to continue to be under pressure. Also, even after lockdown is lifted, leisure travel
is expected to be marginal over health concerns leading to distressed domestic travel while foreign travel is estimated to be
minimal or negligible for the year impacting the occupancy rates and the average room rates significantly for the industry.

Industry recommendations – Affected adversely by the Covid-19 pandemic, the country’s travel and hospitality industry is
staring at a Rs 5-trillion revenue loss over the next year while 35-40 million jobs, both direct and indirect, are in jeopardy.
The nationwide lockdown has shuttered hotel and travel sectors, clogging their earnings. The distressed industry has sought
a bailout package from the finance ministry to sustain its business in the aftermath of the pandemic. Among the foremost
demands of the industry is to extend the tenure of moratorium on loans pegged at three months by the Reserve Bank of
India (RBI) to 12 months in view of the impact. The Federation of Associations in Indian Tourism and Hospitality (FAITH), the
nodal agency of all the national associations which is in touch with various ministries, said the government should take note
of their key recommendations including setting up a COVID-19 tourism relief fund for interest free 10 year working capital
loan for salaries and establishment costs, deferment of all statutory liabilities and an increasing of the banking moratorium
period to 12 months without any interest. Indian Association of Tour Operators (IATO), which represents more than 1,600

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operators for inbound tourists, has also urged the government to provide relief measures to the tourism industry. IATO has
requested for financial support, refund of advance payments made to the airlines for air tickets, refund of advance payments
made for luxury trains and wildlife safaris and all this funds stuck with the airlines, state government, abolishing GST, reducing
VISA fee and several other measures all that would have made India an attractive inbound destination.

Author: Darshini Kansara Inputs by: Nitesh Ranjan

8. Hospitals

The nation-wide lockdown announced by the government has been affecting footfalls in hospitals. With the announcement
of first lockdown, the government encouraged suspension of routine services and non-emergency services by hospitals so as
to prioritize the treatment of Covid-19 patients and to ensure social distancing norms to prevent infection of the virus. Also,
some hospitals suspended outpatient departments (OPD) to ensure safety of its healthcare workers and to avoid the spread
of infection in healthcare premises.

Even with relaxations in recent lockdowns, patients will be hesitant to visit hospitals to avoid infection and will continue to
postpone their non-essential treatments. This condition will continue to keep hospitals in red zone in the month of June
2020. Also, patients that need to visit to other states or cities for their treatment may opt for treatments when travelling is
smooth and is functioning efficiently to avoid unnecessary problems. With government advancing relaxations in every
subsequent lockdown and adhering strict norms, it is expected that patients will start visiting hospitals without much
reluctance from July 2020 onwards. Also, hospitals will find better solutions to provide treatments to non-Covid19 patients.
This, in turn, will aid hospitals to move to a neutral zone.

The hospitals are expected to return to green zone or to normalcy level November 2020 onwards as hospitals and patients
will try to adapt themselves to the Covid-19 environment and social distancing norms.

The hospital services being considered as essential services has not resulted in significant problem for movement of
healthcare workers and emergency instruments for hospitals. Also, guidelines issued during lockdown mentioned that
movement of all medical personnel, nurses, para-medical staff, other hospital services including ambulances will not be
restricted. Also, supply chain serving hospitals were to remain functional. Fearing the infection of Covid-19, many patients
are delaying their non-essential treatments which indicate weak demand from this segment of patients that is affecting the
operation level of hospitals. Along with this, the operation rate also stands impacted with preference to be given to the
treatment of Covid-19 patients. Liquidity also remains a problem for hospitals as non-essential treatments and routine
services provided by them stands disrupted which is affecting their cash flows as they continue to bear fixed costs like
remuneration to doctors, nurses among others.

Author: Bhagyashree Bhati Inputs by: Nitesh Ranjan

9. Media and entertainment industry

The media and entertainment sector, valued at Rs. 1,887 bn (estimated for CY2019) is facing the ripple effects of Covid-19.
Industries such as print, film exhibition, TV production, radio, live events, music and out of home media are negatively
impacted, while digital media and OTT platforms have gained.

Media and entertainment is a labour intensive sector and with restrictions on movement of people, production of new
movies and fresh content for TV viewers has come to a halt. Film producers are facing liquidity issues as they are unable to
release movies on the scheduled dates and as a last resort, some are considering smaller screens due to the shut of film

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theatres. Print industry is grappling with logistics challenge of circulating newspapers, which hits their subscription revenue.
Most segments of the media and entertainment sector are heavily dependent on advertising income. However smaller
segments such as radio, live events, out of home media have advertising as their only or largest source of revenue and in the
present covid-19 scenario most corporates have reduced their advertisement spends, it being a discretionary expense.

Timing of recovery of the media and entertainment sector is directly dependent on how soon the lockdown in the country
concludes. As the sector is labor intensive, it is quintessential for restrictions on movement of people to end. If the lockdown
is assumed to end in June 2020, segments such as TV production, film exhibition, out of home, live events, print can start
functioning. However, certain segments will still not be functioning normally as general public will have increasing anxiety to
go to a film theatre or attend a live event which has mass public gathering. Also, at least till the next 6-7 months, advertising
income will not grow as robustly as in the pre-covid era as most corporates shall restrain their discretionary spending.
Therefore, full recovery of the media and entertainment sector is not expected until Q4-FY21.

Author: Vahishta Unwalla

10. Oil & Gas

Outbreak of COVID-19 pandemic has not been favourable to the oil and gas markets as temporary standstill in the economic
and travel activity of the nation due to government imposed lockdowns has severely impacted demand for fuel in the
economy. Oil prices have been trading at record lows which have not been favourable to oil explorers. Partial recovery is
expected October 2020 onwards and by Q4-FY20 it is expected refiners will be able to operate that their normal nameplate
capacity.

Recommendations

Oil and Gas explorers are reeling from low commodity prices due to the fall in demand prospects of the fuel and prices have
been ranging between USD27-USD 31/bbl which is impacting the realizations of E&P players. Indian explorers are still
required to pay royalty, cess and profit petroleum to the government of India. In order to provide some respite to E&P
players, deferment and reduction in the above taxes could provide some relief to their financial and cash flows.

Author: Urvisha Jagasheth Inputs by: Nitesh Ranjan

11. Power : Conventional and Renewable energy sector

Power supply has been uninterrupted during the lockdown given its status of being an essential service. The lockdown
however has led to a fall in electricity consumption, has impacted the supply of key inputs to power plants and has led to
disruptions in billing and collections which in turn has further strained the finances of power distribution companies and
generators.

There has been a 20-25% decline in power demand since the lockdown due to the sharp fall in consumption by the high tariff
paying commercial and industrial sector which together accounts for nearly 50% of demand. Power generation from
conventional and renewable sources too has fallen. In April’20, the total power generation was 15% lower than month ago.
This decline has in large part been on account of the lower thermal power generation which has seen a near 20% month-on-
month decline in April’20. Power generation from renewable sources in comparison has seen a lower decline (1% month-on-
month decline in April’20). This can be attributed to the mandated ‘must run status’ for renewable energy generators.

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In terms of addition to generation capacity, many renewable energy projects (solar and wind power) have come to a standstill
since March’20 due to the lockdown. In case of solar power, where the country has an 85% dependence on imports of key
inputs (solar cells and modules), there have been disruption in these imports from its main source countries i.e. China &
Malaysia since December 2019 due to Covid-19.

In light of the shutdown, the government has announced some short term relief measures and long term reforms for the
power sector. These include flexibility in debt servicing and clearance of dues, time extension in completing projects and
liquidity support to DISCOMS (Rs.90,000 crs).

We expect revival in generation capacity addition of solar power from end Q2FY21 and wind power from end of Q3FY21.
Recovery in solar and wind power capacity addition is to be supported by the large size of projects up for bidding, large size
of projects under various stages of implementation and expectation of improvement in liquidity at DISCOMS with the Rs.
90,000 crores liquidity infusion (by PFC and REC) announced in the special economic package to clear all overdue power
purchase payments. Additionally, the solar power sector would be aided by the expiry of the safeguard duty imposed on
import of solar cells and modules in July 2020 and improvement is supply of solar cells & modules from China with declining
pandemic situation there. The increase in power demand would be contingent on the resumption of commercial and
industrial activity. The reduction in intensity of pandemic would be a key monitorable for the recovery in the sector.

Author: Kavita Chacko Inputs by: Hardik Shah

12. Ports

Ports sector will be in the red till September 2020 at least as even with the easing of the lockdown in the domestic and global
economies countries will not be able to resume operations fully which will affect global trade and port operations.

Author: Urvisha Jagasheth Inputs by: Vidhyasagar

13. Real Estate

The Real Estate sector is to partially start recovering July 2020 onwards on this basis ongoing construction should ideally
begin and by November 2020, festive demand and improvement in the macros should ideally normalise the operations of
the sector. While commercial & new residential launches, sales and new leasing will not be able to fully recover in the
aforementioned timelines, focus on project completing and clearing of existing inventory will be the focus area of realtors
during this time.

Author: Urvisha Jagasheth Inputs by: Divyesh Shah

14. Retail

While retail industry for essential goods and services continues to function without restrictions, logistics, labour and liquidity
remains an issue for non-essential goods and is expected to normalise only by Q3 FY21 and continue to improve further in
Q4 FY21. Demand for non-essentials might also take longer to recover; even if the malls open; the footfalls will be very low
as consumers will be extra cautious. However, the demand will increase through online channels in segments like groceries,
even consumer durables but fashion segment may not see the demand recovery soon

Author: Darshini Kansara Inputs by: Sharmila Jain

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15. Consumer durables

Consumer durables – mixed bag, demand for some products such as smartphones, premium TV sets, ACs, etc witnessed an
uptick, but logistics remain an issue, festival demand likely to pick up in Q3 FY21 and continue momentum going forward.
However, discretionary spending is expected to be curtailed by consumers during the year impacting demand for consumer
goods considerably. AC and refrigerators sales are likely to be significantly impacted as large part of summer season (April –
June) has been under lockdown.

Author: Darshini Kansara Inputs by: Pulkit Agarwal

16. Road Construction

Even though the government has allowed for road construction activities to resume, the sector is to remain in the red till
September 2020 as the reverse migration of workers has affected the construction activities. Tolling operations have
resumed but the collection is affected as the number of vehicles commuting is much below the usual traffic due to the sealing
of state borders. Toll collection is expected to fully recover December 2020 onwards as there could be an increase in traffic
due to interstate movement as well.

Author: Urvisha Jagasheth Inputs by: Rajashree Murkute

17. Steel

We expect steel demand for FY21 to be significantly lower compared to FY20 with June and September quarters to be
adversely impacted due to lower demand from the infrastructure and construction segments. Covid-19 has impacted demand
and consequently supply of steel. Most steel plants are running at less than 50% capacity utilisation levels. Crude steel
production fell by 20% in March and 69.5% in April 2020 on a y-o-y basis. Most of the peak season demand for steel has been
lost and the weak June and September quarters will pull down steel demand for FY21.

India has been observing nationwide lockdown since 25th March 2020 and although steel was declared an essential industry
and was allowed to operate through the lockdown period, steel production fell sharply as demand from user-industries took
a significant hit. Steel demand is expected to remain under pressure till the September 2020 quarter due to subdued demand
from the construction segment during monsoon.

Steel demand may not return to pre-covid levels in FY21 but will see gradual recovery from the second half of the year with
Q4 to be better than Q3.This will be driven by resumption in demand from auto and construction segments. The recent
stimulus package announced by the government is not investment driven and may not lead to a substantial turnaround in
demand.

Recommendations:

Stimulus package from government is required to create demand for steel. Timely Implementation of infrastructure projects
announced by government in the budget.

Author: Rashmi Rawat Inputs by: Ajay Dhaka

18. Textiles

The Covid-19 pandemic has disturbed the demand-supply situation of the Indian textiles industry. The demand for textiles
has been facing headwinds in both the markets, domestic and international. The closure of retail stores and malls on account

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of lockdown situation across the nation has been affecting industry’s sales. Even while relaxations are given by the central
government in recent lockdowns, caveats remain like shopping malls are not to be opened and delineation of areas into
containment, buffer, red, green and orange zones by respective state and UT governments which will restrict the movement
of people, goods and services depending on the requirements. Also, consumers are expected to restrict their movements to
buy essential goods and services so as to avoid any chance of infection. Even when restrictions and lockdown are lifted
completely, demand for textiles will take time to pick up. This is because footfalls will be low in malls and retail stores as
people will avoid visiting crowded markets and will be skeptical of touching garments. Moreover, export demand for textiles
will also remain under pressure as demand for not so essential goods will take time to pick up. Weak demand will continue
to impact cash flows and the shortage of labour at many textile firms will together affect textiles industry production. All
these factors are expected to continue to keep the textiles industry in red zone for the period June-September 2020.

The impact of Covid-19 on textiles industry is likely to moderate in the third quarter of FY21 as the industry is expected to
witness pent up demand for apparels and garments with festivals like Dussehra, Diwali and Christmas falling during this
period. Also, advancing of relaxations by the government may open up shopping malls. Moreover, to ensure safety of
customers the retail outlets and shopping zones are also expected to follow strict guidelines which to an extent will alleviate
the fear of infection among consumers. Also, export demand for textiles is likely to increase as the international markets will
continue with their efforts to contain virus and to resume with normal activities which may bring normalcy in these markets.
A likely growth in demand will push up production and also expected returning of migrant labour to work will support the
textiles industry output.

In the last quarter of FY21, the industry is likely to enter in green zone with demand from domestic and exports markets
expected to return to normal levels as nations across the globe contemplate to find better ways to fight the Covid-19
pandemic.

The textiles industry has seen cancellation of export orders which led to build-up of inventories with them. Also, unsold stock
with the industry players may soon be out of fashion for the next season to come which will add to their burden. The
unfavourable demand scenario in domestic and export markets have been leading to pile-up of inventories which is creating
liquidity issues for textile companies. The lockdown situation in initial phases had restricted the operation capacities of
textiles industry. Nevertheless, the lockdown guidelines now have been eased for various manufacturing units thus improving
their logistics problems to an extent which is aiding them to improve their operation capacities. Also it is to be noted that
not so favourable demand scenario is restricting textile firms to utilize their full capacities and is bounding them to undertake
production cuts. Labour disruption (many labour have migrated to their hometowns) however continues to limit operation
capacities of the industry.

Author: Bhagyashree Bhati Inputs by: Sudeep Sanwal and Pulkit Agarwal

What more can be done?

The economic relief package announced by the FM has addressed issues on liquidity for the corporate sector including the
SMEs. This is a big plus for those who require funds to grow though admittedly the demand side piece has to fall in place to
make such borrowing viable. There have been reforms in the areas of mining, coal, airports, FDI, DISCOMs, agriculture, rural
employment, social infrastructure etc. If we were to draw up a further wish list on what should be on the agenda of the
government to bring about some momentum in demand, the following can be considered.

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1. Tax breaks for individuals to give push to demand.

2. Lowering of GST rates especially on consumer goods to provide an incentive which can be for a fixed period of time of 6
months to cover the festival cum harvest season.
3. Deferment of corporate tax payments for the year if not a tax holiday.
4. Higher government expenditure on capex on roads, rural construction, affordable housing, ports, urban infrastructure
etc. for a predefined amount of borrowing of 1% of GDP which would be around Rs 2 lkh crore that will generate jobs for
everyone. In fact, the migrant labour that has gone back to their hometowns can be engaged in such activity. State
governments too should be given additional flexibility to borrow 0.5% for such purposes without any conditions being
attached (as was part of the package).
5. Specific TLTROs for sectors such as hotels, aviation, auto, real estate, gems and jewellery, ports etc. To address the
concerns of banks on risk, a guarantee can be extended for a limited period by the government just as has been done for
the SMEs. This will enable to flow of funds to these sectors which will require funding on a large scale to meet costs such
as salaries and wages and operations once functional.

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