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Regions in India and other countries all around the world have been separated on the basis of size, population, state boundaries and many other basis of classification. For the first time in our lives, now places have been classified on the basis of the number of people who are infected with COVID-19. Places in India have been classified into Green, Orange and Red Zones on the basis of the number of people infected at a particular point of time. Green zones are areas with least number of people infected, Orange zones are those with limited number of infected people, and Red Zones are the regions with the most occurrences of the virus. The pandemic has also taken a toll on the economy and industries. This 3 article series by FIC highlights and classifies industries into Green, Orange and Red depending on how the pandemic has affected the operations of the industry.

Red Industry

With the two-month nationwide lockdown, lives and livelihood of many have been affected adversely. The situation of the red industries is so dire that they are facing, in true Dickensian sense – a winter of despair. These industries have been the worst hit and their path to recovery seems a difficult one. A critical relief package in the times of unprecedented demand shock and shutdown of all activity in the country may only help these sectors boom again.

With restrictions on travel and with people afraid of leaving their homes, the most obvious impact of the COVID-19 pandemic has been on the tourism and travel sector. Few industries have fallen as hard and as fast as this sector with a total revenue loss of $2.1 trillion. By the end of the year, it is projected that close to 75 million people could be laid off and many countries who have coffers filled primarily by tourism such as Maldives could have their economies decimated. Each component of the tourism value chain like hotels, travel agencies, restaurants, transportation and entertainment sites – has been hit. The tourism and travel industry was one of the first industries to be severely affected by the pandemic and with global tourism figures projected to reach pre-pandemic levels by as late as the end of 2022, it will probably be the last to recover.

Closely related to the travel sector is the aviation industry, which was reeling under pressure even before the onset of the pandemic in full force. The industry has resorted to large scale layoffs and furloughs to cope with huge fixed cost burdens. Most airlines on average have less than two months worth of cash in hand and with their entire revenue stream disrupted, it is likely that in the coming months many would file for bankruptcy. Recovery is expected to be extremely slow as demand will be suppressed due to low consumer confidence and an erosion of disposable incomes. The most profitable season for the aviation sector, i.e. summer, has now become a bleak time and with forward bookings for the season of October 2020-March 2021 also virtually nil, the industry is facing a severe cash shortage. Even the resumption of domestic flights may not be enough to spur the sector out of its present gloom.

Another major industry that has been hit severely is the automobile industry. The industry relies significantly on manufactured parts and supplies imported from abroad, especially from China. With production on hold for these supplies, it has become increasingly difficult for the industry to acquire input components at affordable rates. The industry is struggling not only on the supply side but also on the demand side. A drop in car sales of around 40% has been predicted for the year, and the industry could find its profit margins decimated, with sales prices falling to induce demand while input prices rise. The world’s fourth largest market of automobiles in India could thus fall into a slump because of such idle production. A silver lining can be found in the fact that China is seeing a V-shaped recovery of demand for automobiles since lockdown restrictions were removed. Perhaps the same pattern may repeat in India.

Real estate and construction activities have been brought to a grinding halt since lockdown was imposed in March. Housing Sales have fallen by 25-30% and the construction sector is facing a daily loss of 30,000 crore rupees each day. Infrastructure projects have been delayed and with time being such a crucial part of most construction contacts, the losses could mount further for the sector. Moreover, several real estate projects are in red zones (urban areas) and it is unlikely that work on these will begin soon or resume at full capacity. Also, the entire country has witnessed reverse migration to rural areas of more than a million people, many of whom are employed in the construction sector. With these migrants unlikely to return to these projects in the near future, the industry could face huge labour shortages. Furthermore, social distancing and regulations would greatly increase their costs of production. Investment in real estate is not likely to recover anytime soon.

Exclusive brick and mortar chains have been annihilated by the pandemic and subsequent lockdown. Demand has been bruised for all consumer products ranging from cars to clothes to chocolates. Many modern retail chains are moving back to the streets from shopping centres and malls, a reverse of what was registered in the early 2000s. The reasons for the exodus from malls include the lower rental costs and lower chance of infection spread. Non essential retailers have seen a 75% drop in revenue and are struggling to keep up with their fixed costs. More than 2 million people are expected to lose their jobs with retailers struggling to move online and delivering through alternative means. Red industries are struggling for survival, and when the worst phase of the impending economic crisis does set in, it is likely they will be hit the hardest again.

By Rishabh Khetawat and Iman Bhatti.

This article is the first part of a three-part series focussed on examining the industrial impact of the pandemic.


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