Most businesses in non-essential products and services will have to resort to scaling down of operations in the range of 25-75% in the wake of the COVID-19 pandemic and the resultant lockdown.
Automobile, high-end consumer goods, consumer durables, fancy FMCG items, expensive clothing, gems and jewellery, leisure holidays, restaurants and star hospitality will be some of the sectors that will witness deep down compression, while essential services such as food companies, pharmaceuticals and healthcare providers will continue to do business as usual, industry experts and trade body representatives said.
The compression will lead to the loss of millions of jobs across segments in the country by the end of May, although data as of now is ‘the most fragile factor’. Businesses will embark on stringent austerity measures as reducing people and minimising the use of real estate will be critical in this regard.
Pradeep Bhargava, president, Mahratta Chamber of Commerce, Industries and Agriculture (MCCIA) said the COVID-19-driven uncertainty had resulted in erosion of income at all levels.
All non-essential, luxury, high-end, lifestyle products and devices will be impacted at least for a year. These include luxury cars, super bikes, lifestyle accessories, leisure holidays, premium clothing and high-end mobile phones.
Vinnie Mehta, director general at Automotive Component Manufacturers’ Association of India (ACMA) termed the current situation ‘confusingly fluid.’
“We had asked all our member companies not to lay off any employee and also to pay their salaries. We are happy to see 100% compliance to our advisory in March and we expect that to continue until April 15. But post that we are not sure of the future. The SMEs are in dire straits, the industry has no working capital to operate further.”
Automobile industry is the largest employer in the country and currently provides 38 million jobs. It accounts for 49% of the country’s manufacturing GDP of which auto component industry has a share of 25%.
“India, as a country, has lost straight $250 billion after a month-long economic shutdown. We are staring at a flat or negative economy. Demand compression has led to serious cash flow issues. Our SME sector employs 107 million people. Unless the govt. provides a cash flow relief, pretty soon, things are going to be ugly. The U.S. has a $350 billion fund for SMEs, a grant to support salaries and save jobs,” V. Balakrishanan, former CFO, Infosys, said.
Mr. Bhargava was of the opinion that India has to put at least 4% of GDP towards COVID-19 relief, and not just a mere 1.7%, as that could bring an additional 3 lakh cash into the system.