Impact of Covid 19 on Indian business

What do we need money for?
October 17, 2020
Show All

Impact of Covid 19 on Indian business

The pandemic named covid 19 have not only set foot in India but across the world, as the treatment or rather correctly say the vaccine is yet to be developed governments across the world decided to impose a “lock-down” of the entire nations.

“Lock-Down” a term which is popularly used in industries for forced closing for a factory temporarily or permanently, for the first time in human history the man kind have witnessed such a “lock-down” which have lot of pro’s and con’s and its impact from environment to business to governance.

India as a developing nation have a widespread impact of this financially, we have seen a mass migration of the labor from town and industrial centers to the rural India or more correctly to smaller towns, villages to check from the cost of living as a migrant. This has also resulted in spreading the pandemic across the nation as most of such migrants have traveled as potential carrier of the virus.

Covid 19 have forced a “lock-down” which the nation have never witnessed and more over it was imposed for a good six months which have crippled the economy and India have witnessed a negative 23% plus GDP, in other words the nation have off-set two complete years of growth.

Impact of this “lock-down” is going to be a blow on Indian economy and it will impact the bread and butter of possible 40% of SME’s and MSME’s, it’s a segment in India which not only keep the business going with own capital and mostly not have enough saving to keep them afloat for a longer period, the problem is compounded when most new entrepreneur’s try the old way of doing business and the Indian banking model don’t allow them to borrow from the regular banking channel, this segment of entrepreneur’s is facing the tough time to restart business, unfortunately so far the government have only allowed businesses who have a line of credit available a breather ( is it enough is a matter of another debate) but there are at least 10 times more businesses who need support but are now facing financial worries to restart. The MSME and SME play a vital role in India’s economy more importantly providing employment in the so called unorganized sector and if I am not wrong at least 60% of such employment is gone at least for a short period on next 6 months to 1 minimum of 1 year, this will result in dip in income of the average Indian but also in consumption patterns there is a possibility that non-core spending’s will be crippled which will result in a dip in retail sales in a longer run.

The Pattern on slowing the economy:

It’s been observed that India will slow down in her economic growth due to the pandemic here are some studies which are showing the way various sectors have impacted:

Sectors which will have impact on economy can be categorize into three broad parameters:

Low Impact                         :              Pharma, Power, Agriculture.

Medium Impact                 :              Textile, Consumer Durable, Automobile, Auto ancillary.

Severe Impact                    :              Hospitality, Airline, Tourism, Restaurants & Multiplex.

 

The way forward I feel that Indian government should do few major changes to start the story on India back on track.

1)

  1. a) The Government should look out means to provide the capital to distressed businesses even at the cost of them turning into NPA’s (it’s better that loans caped to 1 million for service sector and 3 million in manufacturing sector) even 25% of it turn bad then rather a large corporate house turning bad taking away millions of rupee as a collateral damage resulting in huge NPA’s in banking sector.
  2. b) Indian banks should be encouraged to apply the same model in business lending which they apply in opening deposit account, the thrust is on retail so that it is more sticky and even a part of it choose to move away a larger slice of the pie remains with the bank while the same principal is not applicable on wholesale a the business house move the business away almost the entire relationship is moved away.
  3. c) The regulator should presser the banks to lend on business models and not on collateral backed business models be it in service sector, manufacturing of agriculture. The thrust should be on farm and manufacturing sector specially those who are in food processing or into building infrastructure such as cold chain, processing farm fresh food items, the government should also look into the aspect to increase the shelve life of fresh produce by encouraging the new entrepreneur’s into the sector (with AADHAR it can be insured that such credits are been provided only once as collateral free).
  4. d) Banks should be forced to focus on credit off take and banking activities, the thrust of distribution of third party products should be checked and focus to be brought back on real banking products.

With the above I feel Indian economic conditions may recover sooner, we all have heard about a “V” shape recovery which have not enough examples in history but on the other hand all recoveries in past have happened in a “U” shaped recovery the only point is how long the government will wait to stretch the underline of “U”, it’s a known fact that flowing water and economy will find its way forward but if we provide a direction to it then it will be meaningful and recovery will be short.

We are financial advisors who advise you on overall aspect of finance.

Visit us at : www.capriole.co or write to us at info@capriole.co

 

 

Leave a Reply

Your email address will not be published.

75 − = 71

Ask Expert I Live Chat
Live ChatBOT...
WhatsApp