IMPACT OF CORONAVIRUS ON ECONOMY

THE ECONOMIC IMPACT OF COVID-19 ON DIFFERENT SECTORS IN INDIA.

The COVID-19 pandemic has effectively brought normal life to a halt in India. The economic impact of the 2019–20 coronavirus pandemic in India has been hugely disruptive. The Indian economy is expected to lose over 32,000 crore every day during the complete lockdown which was declared following the coronavirus outbreak. Under complete lockdown less than a quarter of India's $2.8 trillion economy is functional. Up to 53% of businesses in the country will be significantly affected.

IMPACT ON AIRLINES

585 international flights cancelled by private carriers as on March 6

As part of its efforts to stop the spread of Covid-19, India on March 12 suspended almost all visas for a month, adding to the woes of airlines. As of March 6, Indian private carriers had cancelled 93 international flights and global airlines 492 flights, according to data shared by the government in the Lok Sabha. With the number of Covid-19 cases in India increasing two and a half times over the past week to 84, travellers might be hesitant to even fly within the country.

“There will be a further demand slump in the domestic segment, at least for the next few weeks,” says Kapil Kaul, chief executive for aviation consultancy CAPA India. Indigo, India’s largest airline, has reported a 15-20% decline in daily bookings over the past few days, compared with the week-ago period, and expects its quarterly earnings to be “materially impacted”. Kaul says the impact of coronavirus on airlines will be deeper than epidemics in the past. This crisis comes at a time when airlines are also being hit by a falling rupee. Clearly, airlines have to navigate a lot of turbulence.

IMPACT ON TEXTILE INDUSTRY

35% of apparel export orders come from Europe

Raja Shanmugam, an apparel manufacturer in Tirupur, India’s largest textile hub, is a worried man. “There is a fear psychosis because of coronavirus. If this continues for 2-3 weeks, it could be really bad for us.”

India exported over Rs 1 lakh crore of garments in 2018-19, according to the ministry of commerce. Exports bring in 60% of Indian apparel maker’s revenues. Europe alone accounts for a third of India’s garment exports. But with the region being declared the new epicentre for the disease by the World Health Organization, new orders are bound to be affected. “But it is hard to assess the outcome now. We’ll know in the next couple of weeks,” says Shanmugam, who also heads the Tirupur Exporters’ Association.

What is accentuating the apparel industry’s problems is the decline in footfalls at stores, both as a result of people’s reluctance to visit them and the closure of malls.

IMPACT ON CONSUMER DURABLES AND ELECTRONICS INDUSTRY

15% decline seen in mobile shipments in Jan-March

India’s consumer durables industry is heaving a sigh of relief as factories in China resume operations after Covid-19 cases taper off in the country. But as India grapples with a rising incidence of the disease, visits to stores might dwindle due to a fear of being exposed to the virus in public spaces, says Kamal Nandi, president of the Consumer Electronics and Appliance Manufacturers Association. This would hurt demand. India imports around 45% of its consumer durables from China, according to CRISIL.

India also relies heavily on China for components like compressors for air conditioners and open cell TV panels.

Similarly, mobile handset shipments to India are also likely to be hit by the supply disruption in China. According to Counterpoint Research, there could be a 15% fall in mobile shipments in the January-March quarter, from the corresponding period of 2019, and there could be a similar impact in the next three months.

IMPACT ON FUEL CONSUMPTION

Petrol sales down 61%, diesel 56.5% in April;

India's fuel consumption slumped by close to 70 percent in April as all petroleum products except LPG saw massive demand erosion following a nationwide lockdown halted economic activity and travel. But demand has shown signs of pick up in the last 10 days of April after the government allowed resumption of economic activity beyond the urban municipal limit, industry data showed.

According to provisional industry data, petrol sales by public sector firms were down 64 percent in the first half of April but ended the month with a 61 percent fall after some up trend in the second half. Similarly, diesel sales slumped 61 percent in the first half but ended with 56.5 percent lower sales for the month.

Overall, petrol sales came in at around 8,70,000 tonnes in April, down from 2.23 million tonnes in the same month a year back. Diesel consumption was down to 2.84 million tonnes from 6.56 million tonnes in April 2019.

Aviation turbine fuel (ATF) consumption collapsed by 91.5 percent as most airlines have stopped flying.

The only fuel that showed growth was LPG as the government dole of free cooking gas cylinders to poor households fired up consumption by 12 percent to 2.11 million tonnes in April, the data showed.

Overall the decline in petroleum product sales was about 70 percent.

The data pertains to sales made by three public sector (PSU) oil marketing companies.

Oil Minister Dharmendra Pradhan, in a Facebook talk on mitigating challenges in times of Covid-19, said globally oil demand has evaporated due to lockdowns imposed to curb the spread of coronavirus. "This is an unprecedented situation in the energy sector. Such a situation hasn't been witnessed ever before".

"India has also seen petrol, diesel and ATF demand crashing. Overall demand has fallen by about 70 percent," he said.

He, however, said there has been a pick up after economic activity was allowed in rural areas in the later half of April.

IMPACT ON AUTO INDUSTRY

Indian auto industry may suffer an estimated revenue loss of Rs 15,000 crore

With each passing hour, an increasing number of automakers have been announcing plant closures and the sector is headed towards almost a complete shutdown. At the time of filing of this report, leading manufacturers like Tata Motors, Mahindra & Mahindra, Maruti Suzuki, Hyundai, FCA, Hero MotoCrop, Honda Motor India, Ashok Leyland, and Eicher Motor had already closed down their operations due to coronavirus.

As per analysis, the $104 billion (Rs7.8 lakh crore) Indian auto industry may suffer a revenue loss of about Rs 1,300 crore to Rs 1,500 crore per day (estimated figure) due to complete halt in manufacturing by automakers for the next 10 days. With an annual business size of $104 billion (Rs 7.8 lakh crore), the sector earns a gross revenue of about Rs 2,000 crore every day. Notably, the sector contributes almost 7.5 percent to the country’s overall GDP, and it accounts for 49 percent of the manufacturing sector.

The estimated loss may be recovered to some extent, if the manufacturers would be able to accelerate the volume and increase the capacity utilisation, upon resuming production. Incidentally, the automobile sector has already been suffering from severe under-utilisation of capacity over the past year due to very weak demand.

"While social distancing phenomena is going to impact the industry in the short term, low shipments of critical parts from China will remain the long term issue due to supply chain disruptions" Rahul Mishra, principal at Kearney pointed out adding that for the next couple of months manufacturing plants in China will produced at a reduced rate due to shortage of materials and workforce.

Last month, Fitch Solutions anticipated that vehicle production in India will shrink by 8.3 per cent in 2020 as the auto industry faces increasing risk of supply shortage due to China's coronavirus outbreak, possibly hitting domestic output if the virus spreads in the country. So far the total vehicle production has declined by 13.29 percent in the April-February period of current financial year 2019-2020.

The Indian automotive industry, which was already in a prolonged slowdown over the past 20 months, is likely to suffer a more serious shock of job losses due to coronavirus spread. More at risk are the contractual workers who constitute around 55 percent of the overall workforce. What will worsen the situation is the reduced traffic at dealerships and muted demand scenario due to fluctuating economic conditions.

“Currently we’re at a very initial stage, but there are certain regions in the country that are deeply impacted. New vehicle sales are discretionary big ticket items, which one can easily shelve if they (customer) are feeling uncertain about their health and income,” an industry veteran said on condition of anonymity.