Coronavirus quarantines India Inc!
Anushruti Singh March 23, 2020
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As if economic slowdown was not enough, the coronavirus or COVID-19 outbreak has brought India Inc. to a standstill. The continuously increasing number of confirmed cases in India and other countries – is resulting in consumption slowdown across various sectors.
Along with the stock market crash, fear of the economic damage from coronavirus pandemic is at its peak. The NSE Nifty 50 index, on Wednesday, showed early gains but then slid 2.8 per cent to 8,714.25, while the benchmark S&P BSE Sensex dropped 2.86 per cent to 29,705. Most Indian equities, which rebounded from a steep fall on Friday on hopes of coordinated stimulus measures to combat the impact of the virus, have been kept in check this week mostly by losses in financial stocks.
The principal tourist sites and financial hubs are closed to curb the spread of the virus – that has only hit the consumer demand from cars to clothes. The global supply chain has taken a big hit due to stalled exports and imports.
“There is no positive news, there is no clarity about the impact of the virus, until there is data-backed positive news a rally won’t sustain itself,” said Neeraj Dewan, director, Quantum Securities told Reuters.
Coronavirus risks pushing small businesses into extinction
MSMEs – the backbone of Indian economy – are on verge of facing massive blow from the coronoavirus outbreak. According to All India Manufacturer’s Organisation (AIMO) study, India is home to over 75 million MSMEs and contributes 30 per cent of the GDP. If the lockdown due to COVID-19 stretch further beyond four weeks, most of the businesses have to close operations. While a staggering 43 per cent will shut shop, if the panic extends beyond eight weeks.
There is uncertainty among small business owners, who are worried about the whole scenario. A Lucknow-based small business owner, VK Agarwal says that the situation is very complex and it’s not clear which all businesses are going to close. “I can’t predict and can’t vouch for the same because it is difficult to judge such figure but definitely MSMEs will incur losses,” he believes.
The government has issued advisory to close schools, college and offices and to halt all social activities and gatherings, further adding to the woes. According to Agarwal, a lot will depend on how the government is handling the issue. He, however, thinks that the government is in panic more than the people.
Meanwhile, an apex body of the business community of India the Confederation of All India Traders sees the fear of virus outbreak gripping the commercial market.
CAIT national president BC Bhartia states, “The footfall of customers is going down each day precisely because of prevailing panic and fear. Delhi is the largest centre for distribution of trade in the country.
About 5 lakh traders from other states visit Delhi daily for procurement of their stores. This number of 5 lakh has gone down considerably to about one lakh and consumer is avoiding visiting markets.”
CAIT estimates that business to the tune of 30 per cent is so far affected because of lower turnout of consumers in the markets due to the COVID-19 fear.
Tiring times for apparel exporter
Apparel industry is panicking over the order cancellation by European buyers. EU consumes almost half of India’s textile and garment exports worth US$ 40.4 billion in 2018-19 – half of which is estimated to comprise of the ready-made garment (RMG) sector.
Major brands such as H&M, Zara and Mango have started cancelling orders or holding shipments, informs Animesh Saxena, president of Federation of Indian Micro and Small & Medium Enterprises (FISME).
The apparel exporters have urged the Reserve Bank of India (RBI) to support the sector in managing financial viability as they are facing severe crisis due to the coronavirus outbreak.
In this regard, requesting immediate relief, the Apparel Export Promotion Council (AEPC) has written a letter to the RBI Governor Shaktikanta Das flagging concerns facing apparel exporters due to coronavirus.
AEPC Chairman A Sakthivel says, “Apparel trade which is deeply integrated with the global value chain has been impacted by the disruption in both imports and exports. Further, this is going to impact the working capital condition of the apparel exporters.”
The AEPC has urged RBI to facilitate faster clearance of banking and packing credit to the industry. In addition, as the orders have been postponed by three to six months, the Council has requested to extend the packing credit period for existing loans up to a period of 360 days from the existing period of 270 days.
Domestic cotton spinners in a fix
Domestic cotton spinners, on the other hand, are feeling the heat too. The virus spread in China and the consequent lockout in parts of China has resulted in shutdown of production units in the country, trickling down to lower demand for the yarn.
As per rating agency ICRA, the domestic cotton spinning industry is highly dependent on exports, particularly to China, with ~30 per cent of the cotton yarn produced in the country being exported and China accounting for nearly one-third of the exports in recent years.
The domestic cotton spinning sector is already facing negative growth sentiments in current fiscal amid multiple headwinds. However, the recent developments could prolong tough times for the spinners.
With no meaningful recovery in sight and continued uncertainty on the extent and duration of the impact of the coronavirus outbreak, ICRA said it is maintaining the ‘Negative’ outlook on the cotton spinning sector, assigned in August 2019.
“There has been a visible weakening in credit profile of domestic cotton spinners in the current fiscal, corroborated by a credit ratio (upgrade to downgrade) of ~0.6 times in YTD FY 2020,” says Jayanta Roy, senior vice president and group head, corporate sector ratings, ICRA.
Steel industry faces meltdown
Steel industry is facing low consumption and decline in exports to China. ICRA report states, China’s export HRC (hot rolled coil) prices, after increasing to $496 per metric tonne in January 2020 from $428 per metric tonne in end-October 2019, have witnessed a 6 per cent fall since mid-January due to a slowdown in China’s steel consumption, following the corona virus outbreak.
Elaborating further, Roy from ICRA said, “Domestic steel prices are currently trading at a discount of 7 per cent to landed cost from China and at a discount of 3 per cent to landed cost from Japan.
While this provides headroom to domestic steelmakers to increase steel prices, rising number of confirmed cases of corona virus in India remains a concern. And, the same along with continuing macroeconomic headwinds could affect domestic steel consumption and pressurize steel prices in the coming months.”
Consequently, ICRA estimates the domestic steel consumption growth to remain 4 per cent to 5 per cent in FY2021, as against the November 2019 forecast of 6.5 per cent.
Given the risk of delayed deliveries due to bottlenecks in production, logistics, port handling capacities, as well as the risk of transmission from import consignments [resulting in stringent scrutiny from port customs authorities], India’s steel imports are likely to remain low in the coming months.
Amid COVID-19 scare, here’s what the industry and exporters want
The MSMEs particularly in employment intensive sectors like carpets, handicrafts, apparels, footwear, gems and jewellery, marine and perishable with their major market in Europe and the USA are likely to be worst affected particularly in first quarter of FY 2020-2021, as per the current trend, asserts Federation of Indian Export Organisations (FIEO) president Sharad Kumar Saraf.
Thus, he has suggested some measures to the government amid all the panic and slowdown:
- Banks must delay the declaring companies’ accounts as NPA (non-performing asset) for one year as the lack of business coupled with fixed cost will make many accounts NPAs.
- Working credit limits of exporters with the banks may be automatically enhanced by 25 per cent
- Collateral free lending up to Rs 2 crore should be implemented for MSMEs
- The collateral requirement must be capped at 35-40 per cent for lending beyond Rs 2 crore
- All existing Export Promotion Schemes must continue till March 31st, 2021
- In the Foreign Trade Policy, the export obligation period under Advance Authorization and EPCG may be extended by 1 year
- Automatic re-validation to all duty-free authorizations by 1 year under the Foreign Trade Policy
- Encourage Indian missions abroad/EPCs to organise buyer-seller meets over video-conferencing.
‘Plan B’ must to deal with crisis, say entrepreneurs
At the time of crisis, the enthusiastic entrepreneurial ecosystem is trying to stay focussed.
Sunil Peter, associate vice president-BCP and IT, Maveric Systems, shares, “We are seeing a minimal impact at this stage across our operations but we are analyzing our business continuity plans to see if more employees need to work from home, keeping in mind the planned customer deliverables. We have flexible policies that can be leveraged, in case need arises. We are cautiously optimistic about the market at the moment and are planning for the coming quarters, factoring any potential business impact as a result of this crisis.”
While Akshit Mehta, who operates boutique co-working space Vorqspace, advises that in the current scenario, time and patience is of utmost importance. “There is a situation where meetings are delayed for one month or longer. But the silver lining is that none of them are cancelled. Whilst professionals are opting for work from home, video calling could be an alternative and pose a new challenge at the same time,” he claims.
Startups that resort to foreign trade policy will have to be more patient, according to the 32-year-old entrepreneur from Mumbai, as they will have to wait and re-manage expenses because the businesses have paused. “Businesses that are Made in India and sold within the country will benefit,” Mehta adds.
The construction industry is also taking steps to protect from the global scare of coronavirus. KNest Aluform founder Nitin Mittal tells SME Futures that for any business there should always be a ‘Plan B’ in the time of crisis, “KNest imports its materials from abroad. We are sourcing local vendors for the same. It’s a major lesson for all businesses to always have keen ‘Plan B’ ready.”