Impact of Covid 19 on the Indian Economy Special Reference to Employment

The Global Environment

  1. The Global Environment is likely to face heavy recession in 2020 and this is likely to continue in 2021 and may be perhaps into mid-2022.
  2. Disruptions in manufacturing and the service sector is likely to increase by leaps and bounds
  3. Government efforts to extend credit terms and other financial benefits like moratorium etc. may not yield big results.
  4. The USA debt capital markets are under severe strain and this will have a cascading effects on other economies
  5. Swapping of currencies between countries will be the new norm.
  6. China will try to push its products in the world market. In the short run there could be some resistance but in the long run this will settle to a new level because of the cry for Make in India, Make in USA etc. Time for the new level to settle would be around 2022.

The Indian Economy

  1. The GDP is expected to drop to a level of 2 to 2.3% or even less in 2020 and thereafter could rise marginally.
  2. Many Sectors would take a massive hit. The automobile sector would take a massive hit followed closely by the Power sector, the I.T. sector and the FMCG sector. The Health and Pharmaceuticals sector is likely to take a marginal hit if at all.
  3. The major challenges would be
    1. Supply Chain disruptions – too much dependence on Chinese products for raw materials and intermediate goods.
    2. Poor or not so good infrastructure and logistic challenges facing the Indian economy
    3. Considering the current situation, the prices of goods from China are likely to increase and this will impact the profitability of many organizations
    4. Consumer goods buying could take a hit due to the consumers getting used to a lower level of consumption, reduced wealth, falling share prices, loss of employment etc.
    5. Industry in the long run would tend to modernize – move towards automation, use several disruptive technologies.
    6. Downward trends in Exports as many countries would move to become self-reliant and become less dependent on imports. This is expected to be seen from perhaps 2021 or 2022.
    7. The US and other countries would increasingly tighten the rules of immigration with the objective of reducing its own employment and this would result in less Foreign Exchange inflow into the country.
    8. Increasing levels of loan defaulters causing an increase in NPAs of the banks resulting in credit squeeze, bank margins getting squeezed.
    9. Deterioration in the US $ to Indian Rupee. The rate is expected to fall from the current 1US$ =Rs.75 to perhaps 1 US$ = Rs.85 say by end of 2021 beginning of 2022.

Segmental Impact on Employment (next 2 to 3 years)

  1. Food and Beverage: Expected to show a positive trend. Employment in this sector could remain positive.
  2. Apparel and Footwear: Expected to show a moderate demand especially in the apparel sector. Exports in this sector are likely to see a moderate downward trend. Beauty products and luxury goods are expected to however show a positive trend. Employment may see a marginal positive change.
  3. Retail: Due to the change in the purchasing pattern of consumers—shift from offline to online there could be a slight decline in the employment figures in this sector.
  4. Power Sector: This sector is likely to see a good demand. New Power generating and transmission stations are likely to come up. The transmission sector could see a tightening of credit. The employment in this sector is likely to see an upward trend.
  5. Pharmaceutical: This sector is likely to see a good demand for its products. Innovation of new drugs, vaccines will be the key to success. Greater emphasis on the R & D activity. The scope for generics would increase tremendously. Employment in this sector is likely to see a good increase.
  6. Gems and Jewelry: Moderate demand. Skilled manpower would be much in demand.
  7. Aviation: Demand expected to rise moderately. Employment likely to be hit for both white and blue collared workers. Purchase of new planes may be postponed. Existing orders may be cancelled or postponed.
  8. Tourism: Domestic tourism likely to increase at a faster rate than international tourism. Employment is likely to increase in this sector.
  9. Hotels/Restaurants: Rise in demand likely. Food Aggregators are likely to increase. Employment likely to increase rapidly.
  10. Education: Major disruptions in the learning pedagogy expected. Radical changes in the syllabus and curriculum. More demand for online learning, special skills, short term programs etc. Some Post Graduate programs likely to be under stress. Simulation based education will be the need of the hour. Cost of education needs to be brought down. Government push is a must for the success of this sector. Faculty requirement will go up tremendously. Industry professional will now be available as faculty but they may not have the necessary qualifications as laid down by the authorities.
  11. Automobile: Expected to show a lower demand. Consumers likely to postpone purchase of automobile due to the availability of mass transit projects e.g. metro etc. Employment in this sector is likely to be hit in a big way
  12. Building and Construction: Demand for housing likely to continue to be low. Prices likely to drop drastically. Cautious buying by the consumers. The market likely to stabilize by 2024. Employment likely to drop by around 20 to 30%.
  13. Infrastructure: Infrastructure projects likely to be given a big boost by the Government. Employment will increase in this sector.
  14. Chemicals and Petrochemical: Demand likely to increase aided by the falling crude prices. Supply chain problems will act as a deterrent to this sector. Most of the chemicals and petrochemicals industries are in the MSME sector, there could be a possibility of credit funding / availability from banks. Employment in spite of above likely to remain stable. Increase expected in 2022.
  15. Financial Sector including insurance: Modest growth expected. Employment especially in retail finance, risk management and treasury management expected to show good growth.
  16. Metal / Mining: Moderate to “Lower High” demand likely. Demand for Iron and steel, coal aluminum likely to increase. This sector is likely to face huge credit problems. The sector uses a large number of unorganized employees and this is likely to affect employment.
  17. Telecom: Demand likely to increase rapidly. Newer technologies like 5 G andplus likely to be introduced. Cash flow likely to exist. Due to increased demand and usage, call dropout rate likely to increase. In the long run this sector will show increase employment requirement.
  18. Agriculture: Agriculture distress likely to continue. Sectoral employment likely to increase. Government support would increase in a limited way. Seasonal Employment likely to increase.

In the long run, businesses will tend to work on new ways to operate businesses. Some of these are

  1. Tendency to decrease fixed costs and operate more on the variable cost basis.
  2. Digital ways of operating businesses and trade will increase rapidly.
  3. Local Manufacture / Start up business will get a tremendous push
  4. Greater push towards improvement of infrastructure, supply chain logistics process
  5. Credit disbursal likely to reduce. Banks likely to be credit shy.
  6. Agility, Speed and Transparency will be the new mantra to succeed

 

Prof. Dr. R. Gopal is the Director of the D. Y. Patil deemed to be University School of Management