Are you wondering why I mentioned Covid 19 situation as extraordinary ?? well this is first time in life out generation (everyone in age group of 18 to 65) where a Health Problem has become Financial crisis. This is not a regional issue rather this might be game changer in International politics & more from Economics & Trade/ commerce standpoint.

For our economy next 18-24 months are crucial especially when Business disruption has happened at all levels. Let’s start discussion with some very interesting aspects / facts then we will move on to Opportunities & what Govt. measures we would need & last but not least what are challenges for us as a Nation. We will try to look at all these aspects.

Interesting aspects / facts: –

• Priorities of spending money has changed & Health / Life at helm of it. Isn’t this fact surprising that Car sales in Wuhan has suddenly picked up after lock down because people are ready to spend more to ensure safety (will same thing happen in India as well?)
• Economic powerhouses are spending a much as 20% of their GDP to move their Businesses out of China, is this Opportunity for us? will discuss further on this in Opportunities section
• Businesses & Human beings are struggling to remain alive & Nature is rejoicing / rejuvenating
• We as Nation helped several countries in saving life of millions of people by supplying Hydroxychloroquine tablets
• Suddenly People have realized that Health problems leads to more damage than War or Economic crises as they hit sentiment very hard & it takes more time to heal

Opportunities & Favourable aspects for Indian economy: –

• Balance of Payment (BOP) – This is huge benefit for us since we import oil & pay for same in US Dollars, can we imagine how much less import is required since all nation is on standstill for more than weeks. Additional benefit is falling Crude prices & on other side IT services are still up & running hence savings of few billion dollars is what we can achieve. Even Imports from China will be down in this year & that will also contribute
• Manufacturing Hub – Can we emerge as alternative to China  & be next World Manufacturing Hub? may be yes but honestly from Infrastructure point of view we are not there as of today but Labour in India is still as cheap as it was in China few years back. I read articles which clearly explains that Labour in China is not as cheap as it was 20 years back. With current Govt. focus on Infrastructure,if we speed up that process it will be huge benefit (will touch base later on policy part of it)
• Medical Equipment Manufacturing – This is massive industry & during our fire fighting measures with Covid we understood that some of the equipment’s can be manufactured domestically. This is not only opportunity to reduce import bill but we can position our self into this area to tap local & International opportunities
• Lifesciences – We are largest manufacturer of generic medicines, that too at quite affordable rates, getting export opportunities & FDI clearances will help in multiple ways.
• Trade Agreements – Chaos is best time to find opportunities. Medical help which we have provided to many countries across the globe might pay off in future & leveraging that we might get into some countries / markets

 

Let’s see how Govt. can fuel this whole process because if we want to leverage this opportunity for our growth, we might have to take tough decisions on Financial / economic front, opt for more transparent policies (trade / commerce), sanctions on imports. Guess what is on top of the list ….. striking balance between Credit infusion, industry expectation of stimulus package / financial aid & Fiscal deficit targets. Let’s look at them in more detail.

• Allowing moratorium to Business / renegotiating existing loan agreements: – Industries would need moratorium for few months. Please note we are not talking about waive off of existing loan, Bank may not do it on their own & RBI might have to intervene & even change NPA norms.
• Buying Corporate Bonds: – In exceptional situations this might be required to provide liquidity
• Credit Transmission: – Most important thing to overcome Financial crisis is working capital. Availability of new / extended credit line @ affordable cost will help Businesses to survive. Govt. might have to put tough norms for all banks to ensure this especially when benefits of earlier rate cuts are not passed on to end customers
• Focused Spend: – Govt has to spend especially in Infra Projects as it helps multiple industries & even employment. This focus on Infra would be extremely important if we want to position our self as Manufacturing hub.
• Support for Innovation: – Govt need to support Innovation at affordable cost
• Quick decision making & transparent policies: – Ease of Business & transparent long-term policies are key to attract FDI or additional investment. We might have to act fast as other nations will also try to take opportunity of getting more manufacturing especially Vietnam & Taiwan.

 

Real Challenges: –

• Demand destruction – Lockdown will have chain effect & impact will be unfolded over next few months. Once sentiment is impacted it take about a year or more than that to improve. This will directly hit demand side & multiple sectors might be impacted
• GDP Impact – 50% of our population contributes to around 15% of GDP, their Avg. salary is in range of 5000 to 30,000 Rupees per month & they are unemployed for more than a month which will impact their Purchasing power & will impact spend which will result in overall impact over GDP
• Labour supply & cost – All migrant labours may not come back or they might demand more wages. Overall there might be some disruptions in labour supply for next few months
• NPA’s / Asset quality deteriorating – Small & medium segments of Businesses will have immense pressure due to loss of revenue & still need to incur all expenses including salaries. They may not be able to come out of this on their own would need immense support (that doesn’t mean we need to bail out every sector)

 

Response from Industry: –

• Conservative on borrowing as overleveraged Business has more risk of collapsing
• Health conscious people will lead to more opportunities in Health care space, special / diet food business
• Re-inventing Business model, economies of scale for cutting cost
• Technology should be leveraged in Business offering

Will try to look at impact on some major industries –

• Demand disruption & Cash flow constraint will remain common factor across all Industries
• might have to come up with very innovative & out of box solutions since this is very unique problem
• Measure might be from Fiscal stimulus to Tax rate cut

 

Industry wise impact & expected Govt. measures
Industry	Impact	Govt. Measures
Aviation & Tourism	Consumer Sentiment overall Demand will be heavily impacted & Compliance related	Extended credit line & some relief in terms of rate of interest can help small domestic players to survive
Auto & Ancillary	Production shutdown, Labour supply & cost, impact on exports	Out of box solution of giving Tax rebate to Individuals for buying Automobile / Vehicles? wouldn’t that be game changer? Especially when we have seen huge demand for Auto sector in Wuhan after lockdown is lifted
Banking & Financial Institutions	Most heavily impacted due to deteriorating Asset quality on one side & need to channelizing credit on other	Govt. Measures including printing currency is great however cost of liquidity / interest rate benefit should be passed on customer / business
Chemicals	Raw material prices, restrictions on import	Lot of potential for export in this sector, Govt might help by policy measures. In this industry we can be an alternative for China
FMCG	Supply chain disruptions, Export challenges & Labour issues	Food processing facilities & compliance related to E-commerce will help
Life science	Imported Raw material & Export restrictions	Support for Govt. for generic medicines & getting export clearances will be key for growth

Very soon I will come up with Blog sharing my thoughts why this is best time for Individuals to think about own finances & will suggest what could be best ways to go for Long term investment.

 

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Photo by Esther Wilhelmsson on Unsplash