What Would Be The Impact On Market After This 2nd Wave Of Covid-19 & The Challenges India Will Face?
The new wave of COVID 19 has impacted the economy and also the anticipated growth. The finance budget presented in February 2021 was appreciated and India was looking forward to strengthening its economy. However, the new COVID wave which is more contagious has disrupted the growth and the momentum.
The year 2020 had muted the growth and this will have deep impacts on our economy. Sectors like hospitality, tourism, aviation, manufacturing were the first to be impacted due the pandemic and resultant lockdown. Government of India had introduced initiatives to help the industry via its Atmanirbhar series and even RBI had introduced various measures and allowed banks to do restructuring with moratorium. We were just about stabilising when this second wave has forced states to go for limited lockdowns and curfews. Sudden and steep surges in cases has forced majority of states to go for lockdown. Unlike the Year 2020 which witnessed a national lockdown we are observing that State Governments are enforcing Curfew / lockdown based on ground reality. This implies that air, transport, railways are operating at a least sub-optimal capacity.
A quick assessment indicates that this second wave has impacted the growth and GDP. In the current quarter, service activity has de-grown substantially, auto sales have dropped, FMCG and electronics sales have been impacted. Passenger car sales have dropped by 10% as compared to March 2021 sales. COVID curbs has also impacted and slowed down manufacturing. The auto industry contributes around 50% of GDP. Textile and tourism which provides largest employment has slowed down significantly. As per some reports stores and retail outlets are already witnessing job cuts because of restricted movement and closures.
Construction work across various states have been impacted. Entertainment industry which was the last to be opened post the first wave has been immensely impacted with closure of theatres and all entertainment/ shooting hubs. Private schools have lost out on revenues too and there has been a big miss on structured teaching impacting the overall learning curve of the students. MSME and SME are struggling as they work on very low capital base and working capital.
RBI has already taken measures by providing liquidity for health care sector, providing long term repo to small banks and providing special recast to individuals, small businesses and MSME. Banks and NBFC will have to relook at their lending and would need to take measures to restructure and reduce delinquencies. The working and resolution through NCLT would be impacted as auction values may be far below the expected value. Implementing NCLT orders in the present environment is very difficult and would impact the times lines and economic value. However, there are industries like pharma, steel, FMCG (essential items), online education, gaming companies, fitness equipments and tech companies, which are doing well despite the present environment.
Impact of pandemic is going to have a long lasting blow as it seems to be here longer than one had anticipated. One of the measures to be adopted is the quick inoculation of the vaccination program to keep fatalities in check to withstand the pressure.
The author is a practicing Chartered Accountant and Independent Director of Public Companies
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