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Impact Of Pandemic On Economy

The economic burden is increasing in industries like aviation, hospitality, apparel, and consumer durables and electronics.

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With the growing havoc caused by a coronavirus, the Indian economy is witnessing the burnt of it. Experts suggest that the global economy trend is about to reverse by putting the growth on standstill. For a country whose 31.9 % population is in the service industry and 24.89 % of the population in the manufacturing sector, the pandemic is bound to lower business volumes and occupancies and such sub-optimal efficiencies will impact the profitability of companies. 

Interconnected trade networks and teeming cities have made societies both richer and more vulnerable, from the empires of antiquity to the integrated global economy of the present. With inevitable attendants like Coivd-19, the economy is now experiencing large-scale quarantines, travel restrictions, and social-distancing measures. This directly affects thousands of people who work in close proximity to one another and rely on myriad shared services. This will drive a sharp fall in consumer and business spending.

The economic burden is increasing in industries like aviation, hospitality, apparel, and consumer durables and electronics. As we all know, to control the spread of Covid-19, the government has suspended almost all visas for a month which is adding to the woes of airlines. More than 500 international flights and global airlines have been canceled. It was also reported that there is a 35% fall in the restaurant business. In 2018-19, India exported over Rs 1 lakh crore of garments out of which one-third of India’s garment exports comes from Europe. It is also marked that there is 15% decline in mobile shipments in Jan-March. As an effect of this breakdown, companies in these industries may initiate cost-curtailment measures, resulting in layoffs, and unemployment and sharply drive business investments down. 

When we think of start-ups there are two possibilities: First, the startups are significantly getting affected as customers taking risks with new technology, process or transaction, is coming to a standstill for at least a quarter or two. Startups get significantly impacted for 2 reasons, one their burn become unsustainable and funding decision will be postponed, in both scenarios, the hardships will grow multifold for founders. Apart from the financial impact, supply chains are getting disrupted, inventory, production, operations, and logistics are taking a significant hit, where startups in spite of having demand may not be able to fulfill these orders, adding significant pressure to the already strained financial conditions. Startup founders will need to focus on their operating capital and conserve this over the next 6 months. Being optimistic about demand recovery is a real problem, founders need to face up to the possibility of a deeper, more protracted downturn is essential. An immediate and effective response is, of course, vital. Startup companies need to focus on the core, conserve capital and build supply chain resilience. Secondly, the startups in the space of healthcare and healthcare technology can see seize this as an opportunity to explore and help the economy combat the crisis. 

Considering the above situation, there are three broad economic scenarios that can unfold: Optimistic- a quick recovery, Medium- a global slowdown and Worst case- a pandemic-driven recession. As a startup, the focus needs to be on demonstrating the core of the company, focus on conserving cash, stabilize the supply chain, perform simulations of these different scenarios, and stay close to their customers. 

A coordinated set of government actions can help the economy balance the setback. Experts suggest that RBI should target sectors like pharma, auto, construction, tourism, etc for further regulatory forbearance to reduce the cost of doing business. Financial support to MSMEs will be required to ramp up the growth. On the other hand, huge increases in public health spending to ensure supplies like masks, gloves, medical kits for the health workers, medicine, health centres, more hospitals can aid to deal with coronavirus on a large scale.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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coronavirus outbreak coronavirus pandemic travel

Nilesh Jain ..

The author is MD, Harm Reduction Research and Innovation Center

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