News


Bracing for new disruptions



02 Apr 2021

Businesses are more resilient after a year of the pandemic, but they will be severely tested again as India battles the second wave of covid-19.

When India went into one of the harshest lockdowns in the world on March 25 last year, the impact on businesses was so grave that the economy went into recession, for the first time in 40 years. Now, as the country battles a second wave of Covid-19, with active cases rising sharply by the day (552,566 cases as on March 31), there is heightened fear that whatever economic recovery has been achieved in the past six months could be wiped out.

Reserve Bank of India (RBI) governor Shaktikanta Das, on March 25, expressed confidence that the second wave of Covid will not impede economic recovery, and that the economy would grow at the 11 per cent the central bank forecast for 2021-22. But industry experts feel the economy’s resilience will be tested by the severity of the Covid wave and be critically determined by the pace at which India vaccinates its population, particularly those in the 20-60 age group, who constitute most of the workforce.

No lockdowns have been announced yet and the Centre has left it to the states to decide the extent of restrictions to be imposed. Punjab, Maharashtra and Gujarat are in the midst of their worst outbreaks. Maharashtra and Gujarat together account for 22 per cent of India’s GDP. The rising cases and possibility of more restrictions in the two states pose a big threat to businesses and the economy at large.

While several states announced curbs on Holi gatherings, the Uddhav Thackeray government imposed night curfew across Maharashtra from March 28. Commercial establishments, including hotels, malls and restaurants, have to down their shutters by 7 pm. The restrictions will hit the already reeling food and restaurant business, as well as organised retail, which had reported an upswing in footfalls after several slack months. Maharashtra may eventually have to lock down again if Covid cases keep rising.

A slow recovery

The nationwide lockdown had inflicted heavy losses on businesses across most sectors. While agriculture, where much of the activity is in the rural belts, did not suffer as much, manufacturing and logistics, which were allowed to continue through the lockdown, took a hard hit. Thousands of migrant factory workers left for their hometowns, impacting production and choking supply chains, and trucks were held up on the roads.

Supply chain issues, poor demand and closure of retail outlets rattled industry, especially the automotive and allied sectors. April 2020 became a month of zero vehicle sales, a first in the history of the country’s automotive industry. In August 2020, the Centre for Monitoring Indian Economy (CMIE) said the lockdown had cost nearly 19 million salaried jobs, not to speak of the setback to the informal sector, which is a major employment provider. The economy plunged into the negative zone, with the GDP contracting 23.9 per cent in the first quarter of 2020-21.

A staggered resumption of economic activity beginning June 2020 saw manufacturing pick up in the subsequent months but the services sector continued to struggle. The growth in the second quarter reflected this rebound in activity as the economy recovered to -7.5 per cent. Driving the recovery was manufacturing, where the contraction was 2.1 per cent compared to 38 per cent in the previous quarter. As many experts had predicted, the economy recovered further in the third quarter, attaining 0.5 per cent growth.

Preparing for the second wave

It’s too early to gauge how the second wave of Covid will impact the economy, but learning from the past, businesses are already taking measures to insulate themselves from the potential impact. “The second wave of Covid has not affected us yet. But we are repeatedly emphasising to our staff, distributors and vendors that they need to follow a strict Covid protocol,” says R.C. Bhargava, chairman of Maruti Suzuki, India’s largest automaker. Be it practising safe distancing at the workplace or keeping shop floors/offices sanitised or wearing masks at all times, businesses are insisting on strict adherence to safety norms.

On the supply chain side, the industry is richer from the experience of the first few months of the pandemic. Companies are identifying alternative vendors should the need arise. There is also an effort at greater cost control, be it in the purchase of raw materials, managing supply chains or running day-to-day operations. “We depend a lot on our vendors, and they know from their experience during the pandemic what is best for them and for us,” adds Bhargava.

Except for those engaged in essential supplies, such as medicines, groceries, and fruits and vegetables, the entire retail sector was battered by the lockdown. Firms are now preparing for the oncoming crisis. “We anticipate things to go wrong again. We have set in place alternative plans to keep businesses running. We are fully prepared,” says Kumar Rajagopalan, CEO, Retailers Association of India, the apex body for the organised retail sector. Traversing through a year of adverse conditions, the sector has honed its survival capabilities. “Most retailers are now better adept at how and where to cut costs, where to renegotiate the stocks and how to make stocks available just in time,” adds Rajagopalan.

Retails firms are also developing online business strategies to see them through the impending crisis. The informal sector has already been using social media, such as WhatsApp, to take orders and deliver directly to homes. Such modes of communication will become extremely handy to keep businesses running in case of a lockdown.

A key challenge, though, is negotiating the diverse regulations individual states are introducing, some of which border on the bizarre. “In Punjab, no more than 100 people are allowed inside malls at any given time while cinema theatres can host 200 people. Ironically, in many cases, the cinema is located within the mall,” points out Rajagopalan. He adds that the industry is fast learning how to work around such issues. “Retailers have developed an agile business model and will go lean,” says Rajagopalan. They will also be renegotiating with landlords to try and bring the rentals down and reassessing hiring strategies, taking in more contract workers, for example.

The jobs crisis

Jobs will be one of the biggest casualties if states tighten Covid restrictions. “Even if a store is kept shut for two days in the week, a sixth of the staff may become redundant,” predicts Rajagopalan. Weekends account for nearly 45 per cent of the total business in markets and malls, so clamping down on weekend sales will be disastrous, he adds. Maharashtra’s decision that shoppers take the rapid antigen test before entering malls could be a huge dampener. It will not only discourage shoppers from visiting malls, but the cost, the Rs 250 per test to be borne by either the shoppers or the malls, will also be a deterrent.

What has also flummoxed businesses is the slower-than-desired pace of the countrywide Covid vaccination drive. When the government began the vaccination programme on January 16, Covid cases were steadily dropping and the country was adding under 15,000 cases daily. By March, cases began to rise quickly. On March 28, India added 62,714 Covid cases, its sharpest one-day spike in almost five months. Around 60 million people had been vaccinated by March 28 and the government has extended the immunisation to all individuals above age 45 from April 1. But Naushad Forbes, co-chairman of Forbes Marshall and former president of CII (Confederation of Indian Industry), is unimpressed. “We have 800 million adults to vaccinate. We have the largest vaccine manufacturers. There is no attempt to understand where the infections are taking place,” he complains.

In Pune, which is getting over 6,000 new infections every day, around 25,000 people are being vaccinated daily. “This needs to be scaled up to 100,000 people. There is absolute bureaucratic control,” says Forbes. Moreover, vaccines should also be prioritised for what he calls the “frontline economic workforce”, those working in shops, restaurants and so on. Other industry captains have also called for re-strategising the vaccination drive. Anand Mahindra, chairman of the Mahindra Group, feels the youth should be immunised on priority. Referring to the rising Covid count in Maharashtra, Punjab, Karnataka, Kerala, Chhattisgarh and Gujarat, he tweeted on March 24: “I again plead for fully opening vaccination eligibility in these states. Young people are also super spreaders. Widen distribution channels. Please allow companies to take responsibility for the vaccination of their people, especially in factories.”

The industry has learnt some very hard lessons from one of the most challenging years in decades and built resilience, but the fresh restrictions being imposed by states in the wake of rising Covid cases are bound to test them again. Much now hinges on how the Covid surge can be tackled with adherence to safety protocols and an aggressive vaccination drive so that the economy, which is on a fragile road to recovery, does not get derailed again.