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Wednesday, April 14, 2021

As Coronavirus wreaks havoc on economy, here are the sectors that need help

The Coronavirus pandemic is ravaging economies around the globe. In India, some of the sectors need immediate support from the government to pull up their socks and get back on track. As the COVID-19 pandemic wreaks havoc on our economy, here are a few of the sectors that require urgent relief.

Moody’s Investors Service, the credit rating business of Moody’s Corporation, has recently said that the Indian economy is in a ‘deep freeze’ and will not grow this financial year. While the MSME sector already received an economic stimulus in the first financial package of Prime Minister Narendra Modi’s Aatma Nirbhar Bharat campaign, announced by the Union Finance Minister Nirmala Sitharaman, the other sectors of the Indian economy will also need handholding. The government needs to provide support to these sectors in order to help them get back on their feet and get the economy back on the path towards achieving the $5 trillion goal.

MSME: The one that got saved

The Union Finance Minister Nirmala Sitharaman on May 13 announced six economic reforms to help the Micro, Small and Medium Enterprises (MSMEs) get back on its feet. She said that the changes were aimed to make the Indian economy self-reliant. Not a single MSME unit will need to pay any collateral or guarantee for the loans availed under this scheme — the government will provide collateral-free automatic loan worth Rs 3 lakh crores. They will not have to pay any principal for the first of the four years either. This is set to benefit 45 lakh units get back on their feet and start their business activities and save many jobs, said Sitharaman.

Traditional convenient store
Traditional convenient store. Photo: Shutterstock.com/NakarinZ

A Rs 20,000 crore subordinated debt has been made available for those MSMEs which are facing an equity problem. The government will also provide Rs 4,000 crore worth of partial credit guarantee support to banks. In addition to that, the promoters will be given debt by banks.

An infusion of Rs 50,000 crore as equity into MSMEs will benefit them as they will gain both potential and viability. This will also cover well-performing MSMEs. They can thus use this opportunity to expand. Another major announcement was that the definition of MSME will be changed by the government to encourage them to grow without having to lose out on the benefits availed by MSMEs. The investment limit was revised upwards and turnover was added as criteria to categorise them. Also, manufacturing and service MSMEs will not be differentiated anymore.

The government procurement tenders up to Rs 200 crore will now be inaccessible for global players and this will allow MSMEs the chance to compete. Sitharaman also promised to clear all dues of MSMEs in the next 45 days.

What happens to the Aviation sector?

The impact of the Coronavirus pandemic and the consequent lockdown is clearly visible in the financial markets. However, there is no clear picture of the intensity of the impact that it is having across businesses and industrial sectors. Based on numerous assessments made by different researchers, analysts and industry body Ficci, there will be a massive impact analysis on the aviation sector.

How severe can be the lockdown impact on the airline sector? According to the International Air Transport Association, airlines all over the world can lose in passenger revenues of up to $113 billion due to this crisis. Airfares will also come under pressure due to nearly 30 per cent drop in the bookings to severely virus-affected destinations. And as a result of this, airfares to destinations like that have fallen by 20 to 30 per cent. Domestic traffic growth across countries will also gradually get a hit as domestic travellers keep postponing or cancelling their travel plans due to the extensive lockdown.

Travel and tourism
Indigo Airplane parked in a terminal. Photo: Shutterstock.com/Nuamfolio.

Some airline providers have suggested that over 30 per cent drop might be seen in domestic travel this summer compared with what was in 2019. It is being expected that the airfares in the popular domestic routes will be reduced by 20-25 per cent and airfares are expected to remain subdued for the summer season as well. Airline companies with their cash reserves running low, many are almost at the verge of being bankrupt. The COVID-19 crisis could lead to a loss of jobs and pay cuts. Some airlines have already asked a lot of their employees to go on leave without pay or cut their salaries for the next few months. As aeroplanes sit idle at airports, the question remains as to when it will all be better?
While some airlines have begun accepting advance bookings in anticipation of easing of the lockdown after May 17, it is still suggested that domestic operations — mainly on key/metro routes, should see a staggered start to operations and also in a phased-out manner.

What happens to the hospitality and tourism industry?

The COVID-19 pandemic and the lockdown has caused irreversible damage to global tourism, travel, and the hospitality industry. It has not only just caused a massive loss of lives — still continues to do so, but is also leaving behind wreckage that will soon lead to chaos in the world’s economies. Researchers, experts have said that they haven’t seen such a concerning downturn of events in this sector as much as this pandemic has caused. There’s helplessness, despair and uncertainty caused by the COVID-19 crisis, which is quite unimaginable.

According to reports, the World Travel and Tourism Council estimated that the tourism industry is at a point to lose 50 million jobs by the end of this and see as high as a 25 per cent decline in global travel. Let’s look at the figure of 8,50,000 people who travel between Europe and America every month, who suddenly stop doing so, can you imagine what will happen? The estimated loss to the United States economy alone is $8.5 billion. India’s estimated loss currently stands at a staggering Rs 5 lakh crore and job losses as high as four crores to five crores. These figures could definitely change depending on how much time it will take for nations to control the Coronavirus.

Taj Mahal on the screen of a tablet
Taj Mahal on the screen of a tablet. Photo: Shutterstock.com/Capricorn Studio

As per Federation of Associations in Indian Tourism and Hospitality (FAITH), around 70 per cent out of a total estimated workforce of 5.5 crores (direct and indirect) could face unemployment and loss of jobs (around 3.8 crores). We can only hope that the tourism, travel and hospitality industry will be able to spring back to business sooner than later. Also, that depends a bit on what the government is planning on doing to help this sector. I could assume that that the rebirth of tourism, travel is quite imminent, however, will it be the same old industry that we all have gotten so used to throughout our lifetimes or more? It is an extremely tough question with no easy answers, not for now at least. This sector has to redefine itself, reimagine how to do things in a post-COVID world and also requires support from the governments across the world.

In the long run, we hope that the government announces relief measures for affected sectors. It is also hard to ensure if these benefits are reaching them in time. Our government could announce some job security schemes across sectors that provides some relief to employees like it is being done in the United Kingdom. This could be the only way to protect the affected citizens in numerous industries. While the above-mentioned sectors are the most affected and need immediate support, there are others too who are eventually on the path of destruction. We could only hope for the best and wish that all of them receive relief on time.

Do not have time to read? No problem. Platocast’s State Of Economy is a weekly Indian Economy podcast where we aim to provide context on the economic news of the week. Listen here. 

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