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A Sectoral Overview of the Indian Economy in Times of Corona

Written By Siddhartha Gupta

After piloting “Janta Curfew” on 22nd March 2020, PM Modi finally bit the bullet and locked down India for 21 days. India, which has rarely seen such a large-scale shutdown, woke up wondering what the future had in store for it.

Though most companies quickly came out with actions to support their employees, giving out salaries and advance and allowing Work From Home (WFH) wherever possible, etc. The truth, however, is if this lockdown continues (Like China and Europe), companies will feel the financial strain on their balance sheets. 

Many Indians are stressed and anxious about their job safety, in case their companies go belly up. Being at the vantage point of helping Talent meet Opportunity, we thought our leaders should co-write an article that will help provide some hypothesis and supporting arguments that can be examined by intellectuals and decision-makers.

Let’s Start with the Indian Economy 

India’s GDP stands at USD 2.7 trillion, with exports at USD 295 billion and imports at a whopping USD 612 billion. Just Oil and Gold imports stand at nearly USD 150 billion. So at first glance, if India anchors down and does a good job of managing domestic economics, we should be able to take off a large part of the population. But the problem for India is percentages don’t make the story come together. For instance, only 9.4 percent of India’s population is above the age of 60 years, so we might think we will be able to accept the fatalities caused by Covid-19, but that percentage translates into 127 million people - which is more than double the population of Italy! 

Hence the need to go deeper into where people are employed today and who will be impacted adversely 

India has approximately 49.5 crores strong workforce, out of which nearly three crores are unemployed. 

Another 25 crores are employed in Agriculture. Though this sector is far from being in the pink of health, our initial hypothesis is the government will keep its Minimum Support Price (MSP) commitments. The demand for food items is expected to remain robust (domestic as well as international). Hence, they should be all right in the short-term. Also, given this scare, this sector should attract more sops from the government for better longer-term well-being. 

About 5 percent of 49.5 crores work with central or state governments or enterprises owned by them. So that takes care of another 2.5 crores. 

In summary, out of the 49.5 crore workforce, 30.5 crores should not see a significant change in the status quo and that leaves 19 crores. 

As per papers authored by eminent economists and professors, 83.5 percent of 19 crores are employed in the informal sector. So another 3.1 crore people are currently employed in the formal private sector with access to PF and other support systems for short-term sustenance. We will come back to longer-term sustenance in a while. This leaves us with 15.9 crore people in the informal sector without formal social support. And this class will be entirely dependent on government and civil society’s efforts. 

So the problem narrows down to a short-term problem of sustaining 15.9 crores in the informal sector and a longer-term problem of the impact on 3.1 crores in the private formal sector. 

Let’s Go Industry by Industry- First the Grim News

  • Textiles and Apparel sector (RED) - This sector contributes about 2 percent to India’s GDP but employs nearly 5 percent of the workforce. Out of the total export of USD 295 billion, USD 37 billion is contributed by this sector. But more than the economic impact, it would be the loss of jobs in this sector that must concern India. Indian exporters are stretched thin on margins because of aggressive competition from Bangladesh and Vietnam (both enjoy special status with the developed world because of the FTA). The government needs to pick this sector on priority to ensure players get extended credit lines, worker wages support, and aggressive diplomacy to protect this segment of the workforce. The AEPC (Apparel Export Promotion Council) has estimated 2.5 to 3 million job losses due to this unfolding crisis. https://economictimes.indiatimes.com/jobs/15-million-export-jobs-may-succumb-to-covid-blows/articleshow/75088157.cms

  •  Construction sector (RED)- This sector is another major employer in India, with nearly 4 - 5 crore workers directly employed in the sector. Again, even before Covid-19, the sector was reeling under pressure due to subdued demand. A sizable government infra spend and continued momentum in affordable housing should see this sector through. The ‘feel impact’ of Covid-19 might be significant here in the short-term, but it would get government support in the longer-term. 

  • Automobile and Auto ancillary (RED) - This industry currently employs 5 million people, and is expected to lay off one million in the next one year. Also, this sector employs contractual workers who form 50 percent of the workforce in the industry who are at a higher risk of losing their jobs. Most KPIs of the industry are in red. During 9M FY20, net sales of the automobile OEMs witnessed a y-o-y decline of about 14 percent on a y-o-y basis vis-à-vis a growth of about 16 percent during 9M FY19. While auto ancillary players (including tires) saw a decline of approximately 11.7 percent vis-à-vis a growth of 14.7 percent during 9M FY19 (Data from Care rating). Our hypothesis is under-penetrated rural markets and niche segments like SUV might revive quickly, but in the long run, this sector needs some massive rethink. 

  • Travel and tourism (RED) - This sector employs around 4.1 crore people and is in deep-red because of the pandemic. People will be reluctant to plan a lot of travel and this could be for as long as six months and beyond. International travel to Europe and the US would be vastly diminished. A lot of small travel operators would go out of business as they lack the liquidity to ride through these difficult times. A lot of smaller hotels would go out of business too. Hotel Aggregators would also have to battle decreasing volumes (Oyo, Treebo, Fab Hotels, etc.). Short-term and long-term support needs to be provided by the government to sustain this sector. 

  • Aviation (RED): Probably taking the biggest hit of the lot, air travel has reduced to a standstill. This will impact airlines with a negative balance sheet and some operators may run out of steam before the demand picks up. We expect aviation to be state-controlled in the near future. Otherwise, the short-term and long-term impact will be humongous. 

  • Brick and Mortar Retail (RED): This will get impacted heavily for months, and there is a real chance that people’s behaviour may have greatly shifted towards online retail post this crisis. 

Sectors Which Might Be in Green - Something to Cheer About!

  • IT/ITES (Green) - This sector contributes about 150 Billion USD to India’s economy - USD 130 Billion from export and employs about 1.1 crore people, directly or indirectly. This pandemic has made the world realise the need to go digital. We feel this sector will weather the storm the best. After initial hiccups, when the world economy limps back to some semblance of normalcy, this sector should pick up. 

  • Education (Schools and Colleges) (Green) -  The education sector is estimated to be about USD 92 billion in value and India boasts of about 39000 Colleges and 900 Universities. This sector, too, will weather this storm the best. Fees for the current quarter are mostly all paid to institutes and most of them are aggressively adopting online learning or a wait and watch policy to pick up the pace post-June.

  • E- Retail (Green)  - E-commerce companies will shoot up their volumes. Amazon and Flipkart will anyway increase their volumes, but their grocery/daily staples business will receive enhanced focus. Specialist companies like Milkbasket, BigBasket, and Grofers will see a massive uptick. However, this would be marred with difficulty in enabling logistics to meet the required demand quickly. Essentially, the companies able to put processes in place should see a wave of customers latching onto their platforms. This could simultaneously lead to a reduction in footfalls across existing retail stores.

  • Retail Banking Sector (Green)-  Employment in this sector might see a turn around given the reality of India (in the light of this shut down). In the last few years, this sector has reduced total net employees. We estimate that India has a large percentage of the population, which remains without access to the banking system. This population can get the benefit of cash transfer from the government only if they have an account. The banking sector needs to make cash available across India. Hence, Green and we might see increased employment.

  • Media and Entertainment: Digital Media and Entertainment services could see a massive boom. With people stuck at homes, the need for entertainment (on-demand mostly) increases multi-fold. Local players like Hotstar, Airtel Xstream, Zee Stream need to be prepared to handle exponential traffic on their servers. MNCs like Netflix, Amazon Prime Video could be better prepared here. Newspapers could see a further decline due to the stoppage of services at certain places and could herald a definite shift to online news sources/websites/apps (hypothesis - to be proved again). Another trend could be that of social media platforms suddenly seeing a swell in traffic (Instagram, TikTok, Snapchat) with new users coming on board.

  • Pharma - India, like all countries, would try and build self-reliance in this sector. The government of India will encourage increased investment in this sector and we can expect increased employment in this space.

  • Insurance - Personal Health/Life Insurance could see an uptick, though such trends are usually very short-term as the general public acts more on recency.

  • Telecom: Ideally, there should have been a spike for the Telecom industry, with increasing dependence on data and internet services. However, the Indian Telecom industry is in a bit of a tailspin now due to the impending finality of the AGR dues settlement. This could lead to Vodafone bowing out of the industry, causing a potential spiralling effect. A lot of the boom mentioned above is on telecom dependence and data availability - so any strain on this sector could hamper the benefits.

In summary, as some experts are pointing out, this pandemic will ensure world economics is led by governments supported by capitalists than the other way around till three months ago. Any country which has a strong leader and can trust its capitalists will come out of this crisis stronger than others.

I would be running a series of validations with industry experts and adding to this article every week.

Topics: News and Events

Originally published April 16 2020,updated May 27 2020

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