The effects of India’s 21-day lockdown are reverberating, with varying degrees of severity, across all the sectors of the Indian economy. As the world prepares for the ‘new normal’ after COVID-19, every stakeholder, from the government to promoters, corporates, and bankers, needs to take action to adapt.
India was already in the throes of a slowdown when the COVID-19 pandemic struck, and now the country faces a period of significant economic disruption as the country locks down to slow the spread of the virus.
As the world scrambles to ease the immense healthcare burden of the virus, most economies are bracing for the havoc the virus is likely to leave in its wake. Many countries have already announced several rounds of ‘economic packages’ so far to aid businesses, workers and healthcare systems engulfed by the crisis. The Indian government and the RBI have also put in place a slew of measures to help fight the COVID-19 menace and ameliorate its economic fallout.
The effects of India’s 21-day lockdown are reverberating, with varying degrees of severity, across all the sectors of the Indian economy. The services sector, especially segments such as retail, aviation and entertainment, have been directly (and severely) hit. The manufacturing sector, too, has suffered. Production shutdowns, labour and supply chain disruptions - especially for companies exposed to international trade-as well as falling consumption, have raised serious concerns about the short- to-medium term viability of many businesses, including the MSMEs.
The infrastructure sector, which was already buckling under immense stress, has been among the worst hit; with stoppages in toll collections, discoms struggling to pay gencos, and the compete shut down of air travel hitting airport operators. The dramatic fall in demand across most infrastructure segments has further compounded the sector’s woes.
The current situation has also led to significant volatility in asset prices, especially for financial assets including publicly traded debt and equity. This, in turn, has had a mark-to-market impact requiring investors, such as global funds, to review the health of their portfolios. Falling asset and commodity prices (oil falling to USD25 per bbl) have directly impacted portfolios, which have also taken an indirect hit from investee companies. As a result, this situation will lead to repricing of financial assets and churning of fund portfolios, while generating new investment opportunities, as demand for alternative capital picks up and need-based M&A (disposal of non-core assets) gains momentum.
As we think of solutions, we must consider the nature and extent of the impact on business, from temporary challenges to long-term repercussions that will shape a new post-COVID reality for companies. Solutions and measures, in turn, need to be customised accordingly.
Loan deferment and interest moratoriums represent a good start, but the situation necessitates deep structural solutions. As the world prepares for the ‘new normal’ after COVID-19, every stakeholder, from the government to promoters, corporates and bankers, needs to take action to adapt to their new reality.
The government, along with the central bank, has already been working on multiple fronts to battle the pandemic. The following actions might help inject impetus into the economic recovery:
The current situation will require companies to:
In conclusion, the current situation is one that has a deep impact on key segments of the economy and is unlike anything we have seen in recent times. The global nature of the pandemic, coupled with its high intensity and long duration, will fundamentally alter the business landscape through changing trade flows, asset prices and consumption patterns. This will impact all key stakeholders, including banks, financial institutions, investors and corporates. The need of the hour is to put in place a comprehensive action plan that addresses potential impact, from short-term cash flow concerns to longer term balance sheet adjustments.
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