On April 22nd ET-ILC organized a webinar for business leaders to discuss their plans to get back to business post the lockdown, the impact of Covid-19 and the practices that have been most successful in other countries. Arun Kumar, Chairman & CEO, KPMG India, Dr. Ron Tomer, President of Manufacturers’ Association of Israel (MAI) and CEO of Unipharm Ltd. Israel and Dr. Raymond Ong, Medical Director, MHC Asia Group were the speakers for the session and it was moderated by Ashwani Singla, Founder and CEO, Astrum.
Key Highlights and Takeaways
- If India follows China’s path to recovery, it can expect growth in the second half of the year. GDP estimate remains uncertain.
- Without a quick recovery, India could see 75 million MSMEs close down operations.
- US, which is currently the epicenter of the pandemic, is crucial for the recovery of the global economy.
- IT services and pharma will see new opportunities arise post Covid-19. Sectors like auto, finance, travel, real-estate, infrastructure will remain under stress.
- In countries like Israel, the manufacturing sector has been 80% operational as industry has been able to negotiate with the government that their self-regulation measures are sufficient and effective.
- Government stimulus and support will be key for economic recovery. Banks will also have to make loans easily available to businesses.
The Indian and the Global Economy
Covid-19 has exposed the collective vulnerability of the world. A virus that was transmitted from a wet market in Wuhan, China has now practically brought the entire world to a standstill. The travel, aviation, service, manufacturing, education and global markets – all have been severely impacted. For India, the route to recovery could be easier than other developing countries if it follows China’s trajectory. China’s economy saw a 7% contraction on account of the virus but is now its manufacturing sector is back to almost 80% of its usual operational capacity. If India is able to control the spread of virus and quickly move to a stage where we see a decline in absolute numbers, there could be a quick retraction from the pandemic. In this scenario, India could recover in the second half of this year and show some growth in FY20-21.International agencies are constantly revising the country’s GDP and at this point nothing can be said with certainty.
However, if India is not able to recover quickly, the economic situation could be grim and we could witness the shut down of close to 75 million MSMEs. For the global economy to recover a lot will depend on large economies like the US and their state. Currently, US is the epicenter of the pandemic and chances of a controlled situation in the near term seem bleak.
For the long term, Covid-19’s economic impact will bring about three changes. One, there will be a shift towards sourcing and manufacturing locally. Countries may look at harnessing internal potential and adopt protective policies. Digital technology will get a big push and everybody will move towards gearing up their systems for remote work. Alternate cost models will also emerge.
Impact on different Sectors
- Real-estate: Many companies may look at the lockdown period, assess the kind of productivity they’ve been able to achieve and consider reducing their office space for the long term.
- Healthcare: This sector will continue to remain under stress for the foreseeable future. Government aid will have to be sought to remain afloat, especially for hospitals.
- IT Services: Will continue to do well and might get more traction due to focus on digital and remote work.
- Pharma: New opportunities will emerge for Indian firms as international firms will look for alternatives to China.
- Solar Devices: The sudden growth spurt due to the breakdown in US-China trade relations has now subsided. US’s stance on GSP is unclear.
- Auto: Will continue to see a contraction and likely to reach 2011 levels. Impact of Covid-19 has been severe since the sector was already under stress.
- Aviation: This sector is looking at a two year recovery period
- NBFCs: Despite RBI and government’s targeted measures, the situation remains grim. These firms have to extend moratorium to their customers while they can’t avail one themselves.
- Infrastructure: Airport projects likely to be delayed. Biggest challenge that players will face is in getting migrant labourers back to work. Industry is advocating for relaxations, GST benefits and other support from the government.
Israel’s Handling of the Pandemic
Israel had shut down air traffic early on, drastically cutting down foreign travel, since airways are the main mode of transport to reach the country as land routes remain severely restricted. The manufacturing companies were able to negotiate with the government, present a plan of self-regulation and avoid economic lock-down. 80% of manufacturing firms in Israel have been operational even in the current scenario.
The number of Covid-19 positive cases have been few and infected employees have been isolated. Overall, the health department is satisfied with the measures manufacturing firms have been taking. Because most industry has been working, it has reduced economic pressure from the government. According Dr. Ron Tomer, President of Manufacturers’ Association of Israel (MAI) and CEO of Unipharm Ltd, the next step would be for the government to make loans very easily accessible to businesses. MSMEs must be given top priority, then large firms and last, high-risk businesses. Acceleration measures from the government are a must. The government must keep spending high and find ways to save jobs and support exports. In Israel, the government has taken an ecosystem approach and thus supply chains and logistics continue to run well. Non-essential firms which manufacture for example, wrapping paper or labels or any other product for essential goods are being allowed to run.
Israeli companies are keen to collaborate with Indian firms. Israel is strong in cyber security, cloud solution, e-commerce, analytics, agriculture solutions and logistics. These firms are particularly advanced in tech and want to explore business partnerships with Indian firms who can aid them in expanding their Indian market or have complementary skills.