Lockdown Poses New Challenge

Mahesh Singhi ,Founding Partner at Singhi Advisors, writes about how the lockdown will reduced economic activities and how employment generation is expected to suffer.

COVID-19 has been infecting the economy in more ways than one. On one hand, the manufacturing is halted, one the other the supply chain is severely affected. The financial markets globally are witnessing unprecedented bloodbath. As the governments, corporates and individuals are focussing on safeguarding public health, such economic disruptions are the natural outcome amid such deadly virus outbreak.

The scenario has led a series growth forecast adjustments. Moody’s has cut India’s growth forecast to 5.3% in 2020. Global rating agencies S&P Global has reduced the growth forecast to 5.2% due to the sluggish demand. For a country like India with a large population, the impact of the COVID-19 outbreak will be immense.

The prevailing economy scenario will have a cascading impact across sectors, the most affected ones being travel and tourism, hospitality, airlines, entertainment, etc. There is a possibility of GDP to fell below 5% in FY2021. From the merger and acquisition (M&A) point of view, the COVID-19 marks a period of sluggish movement, as automobile and auto-component manufacturing companies have either slashed or stalled manufacturing as quite a number of states have gone into lock down mode and authorities have shut down non-essential services as a part of precautionary measure to curb the spread.

The announcement of lockdown in the states is a good move indeed. However, the authorities must ensure that the lockdown is followed in the letter and the spirit. In addition, as commercial activities in the key business districts have come to a standstill, there the migrating population may try to go back to their homeland. The authorities will have to take adequate measures to stop that movement. Keeping the population in mind, that scenario could prove detrimental in the fight against the virus spread. We are yet to assess the impact of COVID-19 on the economy. Given the socio-economic scenario of the country, containing the spread is now the priority for the government.

Because of the lockdown and reduced economic activities, employment generation is expected to suffer. According to International Labour Organization survey, that Covid-19 will destroy up to 25 million jobs across the world. As 75% of the workforce of the country is either self-employed or casual workers, the implications of the virus outbreak will be grave.

In such a scenario, India Inc. expects the government to offer support to battle the adverse economic scenario. Fiscal stimulus, flexibility in debt repayments, etc. will help corporates to manage the stress. Relaxing NPA norms should be another way to steady the nerve. COVID-19 outbreak is likely to worsen the credit scenario in the country further. Boosting the sentiment of the India Inc. should be another key priority of the government.

The liquidity in the financial markets has dried up significantly because of the bloodbath. The financial institutions will have a tough time in catering to the liquidity demand. The recovery is expected to be time-consuming. The companies must factor in all those aspects while chalking out their growth plan. Till the economic stimulus of the government kicks in, the industry must accept the new normal.

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