Lockdown 2.0: India gearing up to bounce back? All you need to know.

For one of the World’s most populated countries to remain under lock down and confine around 1.3 billion citizens to their homes for 21 days was a tough decision.

For one of the World’s most populated countries to remain under lockdown and confine around 1.3 billion citizens to their homes for 21 days was a tough decision. Umpteen number of possibilities were being discussed across the country like how millions could go hungry, businesses were certain to go belly-up, employees may lose their jobs, and so on. However, now we are all set to hunker down even further with the lockdown extended until May 3rd. It is also true that there are hardly any weapons left in our fight against Covid-19 as in a densely populated country like India, where social distancing won’t be easy, a complete lockdown is the only to flatten the Covid-Curve, however economically dear it may prove. The nationwide lockdown has meant the suspension of trade, travel, functioning of industries, and even possible loss of employment for daily wagers. All these businesses and people keep the Indian economy in motion ensuring that the gross domestic product (GDP) continues to tick every day, every week, and every month all-round the year.

Now all these activities have been halted, causing a loss for businesses, earnings for the people, and revenue generation for the government. A CIR report (Centrum Institutional Research) - an investment banking and wealth management firm – says that the lockdown may have cost the Indian economy around Rs 7-8 lakh crore in the three weeks from March 24th to Apr 14th. The per-day cost to the Indian economy owing to the lockdown is likely to cost almost over Rs 35,000 crore. This pushes the 21-day lockdown cost for India at around Rs 7.5 lakh crore. In other words, India could have added Rs 7.5 lakh crore to its GDP in the three weeks, had there been no lockdown owing to the Coronavirus. Assuming that it continues at this rate, the loss to India's GDP could be around Rs 15 lakh crore by the end of the extended lockdown.

Impact on Indian Economy

As per the latest report by McKinsey & Company, over 10 sectors being: Airlines & Hotels, Auto, Logistics, Metals, Oil & Gas, Power, Retail, Chemicals, IT Services, Pharmaceuticals, and Telecommunications are estimated to undergo a compression in output by 5% from Q4 FY20 to Q4 FY21.

The demand in the industry to reopen manufacturing - 80-odd percent of which is closed or operating at low utilization – has been rejected. Opening the manufacturing sector at a time when demand in almost every sector has crashed by around 50-90% might not be the best solution. It can only lead to locking up precious cash into production as sales cannot happen with shops, malls and showrooms continuing to stay shut. However, export-oriented plants may restart comparatively sooner as most international markets are not blocking exports and ports of entry and exit continue to function with some restrictions.

Small businesses account for almost 25% of India’s $2.9 trillion economies and provide employment to around 500 million people, as per government estimates. Micro, small, and medium enterprises exporters will be impacted more by the current lockdown as the sector accounts for over 45% in the country's total outbound shipments. The magnitude on MSME exporters can be gauged from the World Trade Organisation’s projection that global trade in goods is likely to decline anywhere between 13% and 32% in 2020 as countries across the globe continue to battle with the pandemic.

The passenger-less aviation sector has had a lifeline via hauling cargo for private and Government firms in many countries. Ever since the lockdown began, airline companies have clocked around seven lakh km lifting more than 4,300 tonnes of cargo. Given that the airline companies were clocking over 3,000 flights per day on a regular day, this is definitely not enough solace. The airline sector has already been pushed to the wall. Sydney-based Centre for Asia Pacific Aviation (CAPA) recently said that the combination of COVID-related travel restrictions and an economic downturn is likely to result in the first quarter of FY21 being a virtual washout for Indian aviation.

The nationwide lockdown has majorly impacted India’s travel and tourism sector with all modes of transport closed down. Allowing public transport post the 21-day lockdown could have helped operators to generate some cash, but it could work against our attempts to control the Coronavirus. Travel experts have stated that the economic loss to the travel and tourism sector during the lockdown period remains a huge concern, but an even bigger is how long would it take to recover post the removal of restrictions as travelers may still not be mentally prepared to travel in big groups and there is also a possibility of restrictions such as booking of alternate seats.

While extended lockdown may mean more struggle for the majority of the industries, the agriculture sector could get a breather as almost all activities related to this sector have been permitted. With harvesting near 100% in Gujarat, around 70% in Madhya Pradesh, and completed in Punjab, the farming community has a huge relief owing to the opening up of the sector, including ancillary sectors such as cold storage, food processing which are pivotal for securing the produce. Moreover, transportation of fertilizers, food grains and seeds would also get the green channel.

Given that agriculture is the mainstay for around 66% of the population, any negative impact on it owing to the extended lockdown could multi-fold increase the problems. This is simply due to the fact that lower yield leads to lower income for farmers and this would, in turn, lead to poor demand for consumption.

The Road to Recovery

The IMF has stated that recovery in 2021 depends largely on the pandemic being brought under control within the next six months and restoring confidence in the consumer gradually. Normalcy is expected to return during the second half of 2020, though the world economy has shrunk by 12% in one quarter, India’s young demographic, entrepreneurship, start-up, and services sectors is expected to propel growth. Each industry would have unique solutions to ease the stranglehold of the Covid-19 pandemic, which needs to be evaluated and executed properly. For instance, the real estate sector could be improved fiscal with measures like the RBI offering a one-time restructuring of loans, state governments waiving off stamp duty for a limited period, and developers cutting-off prices to sell inventory quickly even if it is for a lower price.

Certain sectors such as banks, online delivery and IT companies continue to work relatively well, as India is a service-driven economy and yet to be known as a manufacturing economy. There will be huge changes in the way businesses perform post the lockdown and banks may continue to be risk-averse towards certain sectors, given the massive non-performing assets generated recently. 
Opening up of select industry chains may not be feasible, given that numerous sectors are directly or indirectly dependent on the other. For instance, a textile factory may require chemicals for processing, spare parts for its sewing machines, plastic for packaging and consumables such as thread. Segregating industries by size may also be difficult since smaller suppliers are generally connected to the larger manufacturers.

A geographic lens to determine how quickly the lockdown could be lifted when a new protection protocol needs to be in place. The classification of areas into Red, Yellow, and Green zones could be updated at regular intervals as the situation evolves. The definition of a “zone” needs to be as micro as possible (such as by ward, colony, and building cluster) to gradually open as much economic activity as possible in the safest way. Since there is a high possibility of the virus lingering on during the course of 2020, such a microtargeting approach could help decelerate its spread while keeping livelihoods go on smoothly.