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Sunday, April 18, 2021

COVID 19 – Sector wise impact on the Indian Economy

Do we have enough food to feed the poor?

There is no industry that we anticipate that will be immune to the COVID 19 pandemic. Let it be auto, aviation, agriculture, IT services, experts believe the impact will be felt everywhere. Before we further go deep dive into each of the sectors, lets address the basic question. God forbid if the pandemic goes worse and continues till the end of the year, will the people have food to eat? Thankfully the short answer is a definitive yes. With that, let’s look at sector wise analysis.

Food Reserves in india

Agriculture & Related:

India has an annual food requirement of 50 million to 60 million tons of rice, wheat and other pulses to support various welfare schemes. According to a latest estimate, State-run Food Corporation of India (FCI) will have 100 million tons in warehouses across India by the end of April 2020. According to an interview given by D.V. Prasad to Bloomberg, the current supplies are at enough levels to feed the poor for at least a year- and-a-half period. Additionally, India is expected to produce a record 292 million tons of food grains in 2019-20. D.V. Prasad is the chairman of state-run Food Corp. of India.

Supply chain problem in agriculture:

Supply chain problem in agriculture:

However, there is little reason to celebrate. Even though India does not have a supply problem, it may have a supply chain problem. Due to inter-state movement restrictions the movement of goods and services came to a grinding halt. The links in the chain connecting farmers to consumers have broken down, This in turn opened up arbitrage opportunities for unscrupulous brokers. Experts fear that fixing this broken supply chain will take time to be fixed. The closure of wholesale ‘mandis’ adds further troubles to the broken supply chain. If the farmers can’t sell the produce to the wholesale buyers, they have two options. One is to defer the harvest or sell it to local retailers. Both the options have disadvantages. Selling it to retailers makes farmers vulnerable to exploitation. Deferring the harvest exposes the produce to bad weather.

Adding to these problems, workforce Shortage & Gaps in seed distribution will further escalate the problems. Currently we just finished the ‘Rabi’ season of the crop production. For farmers, who are in midst Of harvesting wheat, and mustard the flight of workforce back home has spell problems. Similarly, in Punjab and Haryana, wheat harvest is expected to begin in mid April. Shortage in the workforce means problems for the farmers as they may not fully harvest the produce. And to prepare for the Kharif season, farmers will start sowing seeds between March and May. If farmers do not get seeds in time, this means a dip in production of essential food grains down the line.

Hospitality & Related – Impact of Corona Virus Pandemic

Hospitality & Related

As Hindu Business Line reported, Foreign tourist arrivals or FTA in short, last month dropped 9.3 per cent month-on month and 7 per cent year- on-year, according to government data. In February 2020, there were 10.15 lakh FTAs, against 10.87 lakh in February 2019 and 11.18 lakh in January 2020.

Grinding halt of movement of people:

Remember, the government suspended international visas till April 15. Moreover, several international airlines have cut their trips to the Indian destinations. As of March 23rd and until further notice, there is a complete shutdown of international and domestic operations by the Indian origin airlines. All trains are suspended within the country. Several states have a total curfew. All these suggest one thing. The revenue from the tourism industry next quarter is going to be a sum of zero rupees. The tourism industry in India contributes to about 10 percent of the GDP standing at approximately US$275 billion.

Citing the “Federation of Associations in Indian Tourism & Hospitality” Hindu business line concluded “the tourism industry is looking at bankruptcies, closure of businesses and mass unemployment. It is believed that around 70 percent out of a total estimated workforce of 5.5 crore (direct and indirect) over 3.8 crore could get unemployed.”

Auto & Related Industry – Impact of Corona Pandemic

Auto & Related Industry

Perhaps the auto industry sets a record in terms of how many problems an industry could face because of coronavirus pandemic. Indian auto industry is already facing many problems long before the Corona pandemic hit the world. Back in September 2019, Ashok Leyland announced it is suspending production at several units from five to 18 days in September. Back in august, the car sales hit a 21-year low. In this background, Auto industry has to fight this economic hardship caused by the Corona pandemic. According to one estimate, 7 lakh 20 thousand BS-4 vehicles are yet to be sold amidst 1st April 2020 deadline. Given this slump, there is no way the dealerships can liquidate the stock. As we are writing this, the dealership association had asked for relief from the deadline and approached supreme court.

Jewelry & Related

In the current lock down, Indian public are running around to grab the essential supplies. Buying jewelry perhaps is not even a topic of discussion in an average Indian household now. As economic times reported, India’s sales of gold jewelry to bars are set to plunge to the lowest in a quarter of a century. N. Anantha Padmanaban, chairman of the All India Gem and Jewelry Domestic Council, anticipated Total purchases are estimated to plummet 30% in 2020 from the 690 tons last year.

Reduction in the demand across broad range of goods and services:

Amid the coronavirus pandemic, while recognizing the “central bank announced a broad set of policy measures to ease the economic shock ..”, Moody’s cuts India’s GDP growth outlook for this year to 2.5%. Considering the lockdown imposed in the country, the ” we expect consumption – which contributes around 60% of India’s economic output – to decline sharply. ” Read full article here.

Moody’s forecast of Indian economy. MARCH 2020.

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