What Impact will Have on Industries if Lockdown Extends?
Published on : Wednesday 29-04-2020
As the number of Covid-19 cases continues increasing across the world, the healthcare sector is facing huge pressure to contain the virus. In India, where over 31,000 people caught under the epidemic, the concern around the extension of the lockdown is raising again. The country’s GDP already faces a sharp decline due to the government-mandated lockdown. According to Barclays research, India's loss of economic activity could be as high as $234 billion in the lockdown period, resulting in zero percent GDP growth this fiscal. On the other hand, ICRA expects GDP to shrink by 1% in FY21.
Looking at the current increasing cases of Covid-19, the question raises what impact will have on industries if lockdown extends.
Already, on April 14, the Government of India has exempted some industries from the restrictions to start the supply of essential things across the country. This could be a positive impact on the economy and the country. In fact, the day is no far, on May 3, when the complete lockdown would be over. But many states appear to be supportive of prolonging the lockdown because the number of patients continues to rise. Well, this is the matter of ultimate consideration by the central government.
But what industries leaders say about this? According to FMCG giant Dabur, the Covid-19 pandemic and the consequent lockdown will have a “material” impact on the company's production and sales, and this will continue till the lockdown stays during the current financial year. On the other side, Hindustan Unilever’s sales have plummeted to 40% of the usual daily run rate, after scaling up from low single digits in the last week of March. The Indian subsidiary’s factories are operating at about 40% of the required output. Even, shares of Hindustan Unilever Ltd have dropped roughly 10% in the last three weeks on profit booking.
Moreover, the data from the Centre for Monitoring Indian Economy estimates that the unemployment rate is now surging in the wake of the nationwide lockdown, sending the urban unemployment rate to 30.9%, with overall unemployment rose to 23.4%.
Transportation, especially the aviation industry, has harshly affected due to the lockdown as it has grounded off international as well as domestic flights. Recently, Sydney-based Centre for Asia Pacific Aviation (CAPA) said that the combination of coronavirus-related travel restrictions and an economic downturn is likely to result in the first quarter of FY21 being a virtual washout for Indian aviation. In addition, Vistara airlines also noted that the extension of lockdown and suspension of airline services till May 3, further impacts its cash flow significantly.
The major effect of Covid-19 also impacts the hospitality industry, as Lemon Tree Hotels Chairman and MD Patanjali G Keswani said “The impact is disastrous. The hotels are businesses which are very capital intensive and also have very high fixed costs.” Hotels are labour intensive, so they have lots of fixed costs such as wage bills, along with paying government levies, minimum load charges, among others. The Indian hospitality industry was on average witnessing 65% to 70% or full occupancy till the end of February. The first few days of the March were even fine, but once the things started accelerating, the occupancy has gone down to minimum, he said.
Now, most people believe the lockdown would be opened in a phased manner – Red, Green, and Orange, while some expect to open for the economy. To fight against the Covid-19 pandemic, the government announced financial assistance of $22.6 billion for poor and migrant workers, including free food grains and cash transfers to different segments, and $2 billion to improve the health system. This is the country’s GDP of 0.8%.