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| Sectoral Economic Implications of the Covid19 situation | | | Deepika Badyal, Sharad Sharma
The novel coronavirus continues to wreak havoc on daily life around the world. Lockdown and physical distancing are the only means to curb the virus, although it takes time. It works by reducing the pool of potential people that the virus can infect. This way the authorities stand a chance to contact trace and quarantine those that have been infected or that have been in contact with people infected. But it is economically destructive. The experts have been stating that the impact of a pandemic is expected to be immense. The International Monetary Fund has already declared that the world economy has entered a global recession. As the global economy grapples with the impact of Covid-19, the implications on various sectors shall be mixed with opportunities as well as challenges.
Sectoral impacts
Smartphones: Global recession will hit China the hardest or so they say. The smartphone market in China has already witnessed a sharp decline in Jan and February. As far as the Indian Government is concerned, they are trying to wean away manufacturing from China. Certain nations such as Japan are now looking forward to widen their manufacturing and supply chains to newer destinations. These nations are aware of the fact that almost all countries have received a massive jolt with the spread of Covid 19 so this is high time for them to diversify risk in their production lines. With respect to electronics in particular, India is at a very sweet spot and the Government is also wanting to tap into this potential.
Therefore the reason that the government notified three schemes with incentives totaling 48000 crores to boost mobile phone manufacturing in the country and the dominant production-linked incentive (PLI) scheme has the lion’s share of close to 41,000 crores with sops to be spread over three years. The sole aim is to attract high end smartphone players like Apple, Samsung, Oppo and Vivo to set up their entire value in India make the country their export hub.
Automotive: the pandemic has affected the automotive sector as well. The initial impact of the pandemic on the automotive supply chain and production was localized to China. Now with the spread of the deadly virus to Europe and various other regions around the world, the key concern shifted from supply chain disruption to demand vaporization. The auto supply chain has been disrupted as production halted owing to lockdowns across the world. This sector was already facing the decline in sales for quite some time now but with the current situation a whole lot of automakers have halted production of new vehicles. They have diverted their resources temporarily by making masks, ventilators and modified respirators. Hence changing consumer demand, a disrupted supply chain and production stoppages are impacting the automotive sector big time.
Retail: While it’s been clear that pandemic has had a huge impact on retail, this critical situation has in a way forced businesses to think of new new and unique ways to cater to consumers. The companies are rushing to streamline their supply chains to secure immediate operations across the globe. Back home also the retail industry which has more than 15 million retailers and employ over 40-45 million people, is facing the same wrath of the coronavirus outbreak and a stringent nationwide lockdown. Most stores, except shops selling essential food and grocery are shut across the country. Small retailers are likely to be affected the most. Retail contributes to around 40 percent of India’s consumption and 10 percent to India’s Gross Domestic Product. That said, virus, in all its volatility and stress, has brought with an opportunity to take a hard look at the entire consumer and retail supply chain so as to meet tomorrow’s needs.
Transport: This sector is hit the most as 2020 has started off in nightmarish biblical proportions. Almost all companies in the air, land and sea transportation and services sectors had been hard hit by the deadly Covid -19 virus. The flights are suspended, even road and railway transport is shut down. This industry is under threat as millions of jobs could be lost.
Conclusion- This disruption can be used by countries like India, Vietnam and Bangladesh etc as an opportunity to attract manufacturing units and factories shifting out of China for diversification of their supply chain. The movement of companies away from China to other less-developed countries would trigger a new wave of industrilisation.
Hence, there is a scope for India to take pre-emptive action. At the moment , it is vital to understand that every industry is different and it shall focus on recreating a robust infrastructure. India is a global leader in generic pharma which is dependent on APIs from China, GOI needs to boost APIs manufacturing in India. This could yield greater and faster gains. Within India, since the global chain is disrupted, the local manufacturers will have the opportunity to fill the gap and capture the domestic market as well as regional and global markets. Lastly, staggered exit strategy starting from 20th April is a right step towards the right direction. |
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