The famous quote reiterated in the words of Dr. Raghuram Rajan “INDIAN ECONOMY IS LIKE THE ‘ONE-EYED’ KING IN THE LAND OF BLIND” explains the hunger for growth in the Indian economy. From an estimated 5.3% to 2.5% GDP cut (as per Moody’s Investors Service), can the Indian economy survive the economic slowdown caused by the global pandemic coronavirus impact?
WHO reports that coronavirus cases have spread to about 187 countries affecting 3,642,068 cases in total. There are about 42,836 confirmed coronavirus cases in India with a death toll of 1,389. To contain the spread P.M Modi announced the nationwide lock-down. This lock-down has unfolded in 2 phases and uncertainty still looms at large. There exists a dilemma of whether to save lives or economy, where one cannot co-exist without the other. Lock-down blues seem to have affected major sectors in the Indian Economy. Let us analyze a few sectors here.
PHARMA SECTOR
The Pharma sector has been a leading contributor having a market size of 20.83 billion (US$) as of 2019. Indian drugs are known to cater to 50% of global vaccine, 40% of generic demand in the USA, 25% of all kinds of medicine demand in the UK.
Due to the lower cost of production, China has been emerging as a major threat to domestic manufacturers. China has been very successful in producing API (Active pharmaceutical ingredient) at a price much lower than India. India, in turn, is importing API from china making it difficult for the domestic manufacturer to survive. India s dependence on China (70% of imports) poses a significant threat to India’s pharma sector. China has been able to achieve this through economies of scale, easy availability of utilities, the grant of subsidy by the government to support their manufacturing, fiscal incentives, and low taxes. Extended lock-down would impact the demand and manufacturing balance (sales in March grew by 8.9% due to the panic buying) resulting in the shortage of global supply chain.
According to the Indian Drug Regulatory Authority, extended lock-down would result in at least 57% short supply of API, other drugs, and vitamins. Logistics proved to be very difficult as C&F agents could not meet the required demands. The key production plants would not operate at their full capacity ending up paying a huge amount of fixed cost. The positive aspect in this sector is that in spite of a huge price hike in the raw materials & APIs, the end consumers may not witness the price rise since most product prices are capped under Drug Price Control. The export firms catering to the pharma demand to other parts of the country could also take benefit under the given conditions.
EDUCATION SECTOR
India accounts for 500 million in the age group of 5-24. 28% of the population belong to the age group of 8-14 years. In 2016, when the P.M Modi government introduced digitization to India through its demonetization policy, it's paved way for Ed-tech sectors to boom. Ministry of Human Resource Development has initiated SWAYAM to provide free courses from standard IX to post-graduation via different online platforms. India ‘s online education market will capture the market size of US$ 1.96 billion with a user base of around 9.6 million in 2021.
Gradeup one of the competitive preparatory platforms has successfully launched the campaign #PadhaiNahiRukhegi offering free and live video classes. The company expects that free to paid users will increase by 20-25%. Like Gradeup there are many E-learning apps (Byju, Khan Academy, Toppr, Coursera) which are offering free /discounted live video lectures. Google has launched an online hub Teach from Home which enables educators to learn how to conduct online classes.
AUTOMOBILE SECTOR
The automobile sector contributes 2.3% to India’s GDP and employs over 5 million people. It boasted $15 billion in exports and the industry turnover stood at $57 billion in the year 2018-19.
The major auto part makers ( Robert Bosch GmbH, Valeo AS, and ZF Friedrichshafen AG ) are mainly situated in Hubei province. India imports 27% of its automotive parts from China. Due to the ongoing coronavirus pandemic, there has been a huge shortage in Bharat Stage IV models due to the closure of factories in Hubei. The economy seemed to have a V-shaped recovery post lifting of lock-down in china. Demands for OEM are trying to resurface and experts hope for recovery within the next festive seasons.
March 2020 has witnessed a complete disruption in the supply chain resulted in losses accounting for 30,000 crores. The demand for OEM parts, BS-IV has further exacerbated the issue for the 2W segment. The automotive industry was already in a conundrum, not being able to clear off their BS-IV inventories. Maruti Suzuki India Ltd (MSIL) has reported 0 sales (including OEM) for April.
According to the Fitch solutions, vehicle productions would shrink by 8.3% in 2020 and 13.2% in the year 2019 eventually making the transition to BS-VI more difficult. The impact of Covid -19 could also be seen in EV, who are just at the Start-up stage of the S-Shaped curve. EV has seen an increasing demand after the FAME-II scheme adopted by the Government.
MaIndia has seen a recent increase in 2W operators ( Bounce, Vogo, Yulu) focusing on the bike rental model mostly in Tier I and Tier-II cities. This segment has been hard hit due to a lack of demand during the lock-down.
BMW has announced complimentary engine oil services to the bikes and cars sold through BMW, Mini, Motorrad sub-brands to all the front-line warriors to appreciate their efforts to save the people. Jaguar Land Rover has extended its warranty and services to its customers for an additional 2 months. Hyundai Motors is extending its support by providing 17,000 PPE kits, 20 lakhs masks, 1.5 lakhs sanitizer kits, 6000 dry ration packages.
Together we can fight the corona battle by being generous and kind to our people. It would be not an easy revival for our economy.
It’s very easy to pull on the lock-down forever, what’s difficult is to find an exit strategy. The time has come when the government should start reopening business sequentially. While doing this utmost care must be taken to maintain physical distancing and not letting the curve rise. India with a population of 1.3 billion lacks enough testing capability, indefinite lock-down is sure to crunch the economy even further. economic activity should be opened up in a phased manner.
To end with, I wish all the readers to stay calm and abide by the rules so implemented!!!
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