COVID 19: Pandemic Challenges and Looking Beyond

by Surbhi Arora Pradeep Kumar Sahoo - 22 May, 2020, 12:00 5373 Views 0 Comment

The world came to standstill due to the lockdown all across. Anxiety gave way to anger and patience to fear for the uncertainty of life and earnings. COVID-19 redefined many things in the world and made us realize how insignificant human life is in the fury of nature. With no cure or vaccine in sight, people have started accepting the new normal of wearing masks, washing hands regularly and social distancing. Handshakes and hugging have become a thing of the past and the new normal human beings behave and act differently living in the fear of an unseen enemy ready to pounce anytime.

COVID-19 is having its impact on various aspects of our lives and on the economy. People have started doing the routine tasks but many have been hit financially, emotionally and psychologically. India was already facing a huge unemployment problem and this current crisis has made the situation worse. People are being laid-off; salaries are cut down drastically or not paid at all – leading to a restless and a helpless situation.

In 2018-19, the Agriculture sector contributed to 17 percent to GDP at current prices, Industry contributed 29.6 percent and the Service sector contributed 54.3 percent. With current data flowing in, the estimates of GDP have been revised. Bernstein, the US-based investment management firm, has estimated contraction in the Indian economy at 7 percent during 2020-21, while Goldman Sachs projected it to be 5 percent (Dhasmana, 2020).

In absolute numbers, India’s national output will shrink by as much as Rs 7.3 lakh crore. Assuming a 5 percent negative growth in nominal terms, it will result in domestic output shaving off nearly Rs. 10 lakh crore taking GDP to Rs 194 lakh crore in FY21. Worryingly, this time, if the negative growth forecasts turn out to be true, India will see the harshest recessions it has ever experienced (Service, 2020).

The ICRA report pegged the direct fiscal impact of the package at 10 percent of the headline figure, or 1 percent of gross domestic product (GDP) while stating that it ‘will not be able to counter the demand destruction caused by the COVID-19 outbreak, or address the prevailing supply chain infirmities.’ According to the report, the stimulus package contained more enabling provisions to support economic recovery after the lockdown was lifted rather than address the immediate needs of various sectors (Noronha).

Railways are likely to freeze hiring and cut down on allowances. Zones like the West Central Railway (WCR) have initiated such measures to reduce the expenses on infrastructure works and employee cost. Railways’ traffic dropped 32 percent to 99.86 mt between April 1, 2020 and May 14, 2020, compared to the same period last year (Jacob).

India does not have fiscal buffer therefore, a large fiscal stimulus has been a bold bet since it will impact ratings and currency, if not executed properly. The government has sought to alleviate several economy-related issues triggered by the rampant spread of the COVID-19 pandemic that stalled economic activity in India since the first lockdown in March. The government announced a credit guarantee for fresh credit to micro small and medium enterprises (MSME) and to support the poor and migrants via expanded employment guarantee program, provision of food for poor and migrants. A study of 450 MSME members revealed that government departments including state departments owe them Rs. 1,709 crores, while the private sector also owes about Rs. 110 crores. Government accounts for nearly 94 percent of Rs. 1,819 crores dues are payable to MSMEs according to CII poll. (Chakraborty, 2020).

The flipside to the expansion of MNREGA is that it would impact labour availability, as rural migrants may not rush back for jobs. As a result, the construction and transport sector will be impacted most (Wadhwa, 2020).

Due to the COVID-19 outbreak, oil and gas markets around the world have suffered a lot, triggered by weak demand in petroleum products. Oil prices declined and have fallen down to record low during this period. An additional factor influencing the oil market is the failure of the OPEC deal between Russia and Saudi Arab in March 2020. Lack of oil storage space, crude oil oversupply, lower demand for petroleum products have crushed the world and have forced oil and gas companies to take all kinds of preventive measures to minimize financial and operational losses. Due to these factors companies in the oil and gas industry have taken certain measures to sustain themselves in the business. Few significant measures taken by companies are – reducing capital investment and optimizing investment programs, redirecting investments from oil and gas business to non-oil and gas business, reducing oil and gas operation, reducing liquid productions, suspending oil and gas projects, reducing exploration and drilling activities, reducing refinery operation and throughput, reducing petrochemical production operation, cut down in manpower and salaries.

In order to stabilize the oil price, OPEC+ deal led by Russia and Saudi Arab reached a mutual consent for reducing production in stages till 2022. Other OPEC+ members also have given their consent for voluntary reduction of crude oil production. It is noted that production reduction is only for crude oil, not for gas condensate. Post lockdown in many countries, the oil market can see a gradual increase in oil prices in 2020.

In India, due to lockdown downstream companies have reduced petroleum production, shut down petrochemical units resulting in a record low demand in April 2020. Post lockdown, increase in economic activity in the country may revive the fuel demand. Downstream companies are expected to increase their production of petroleum products at full capacity. Petrochemical units are expected to resume their operations fulfilling ongoing demand. Several other downstream industries including plastics packaging supplies are expected to resume operations at full capacity.

Agricultural activities, construction of roads and buildings or IT related activities so far have been less affected by the coronavirus pandemic. Madan Sabnavis, the chief economist at CARE Ratings is of the view that it is good that the government has opened the doors towards working on an exit route and has included the most essential activity, agriculture to operate freely (Gupta, 2020).

Government, organizations and people need to be prepared even if the lockdown ends. The strategies for short term and long term goals may need modifications and corrections. Services like education and training, hotels and restaurants, malls and cinema etc. might have to wait for a much longer time since they involve the direct interaction of people. It is the time to wait and watch as even after the lockdown ends, COVID-19 may not.

Surbhi Arora
Author is Chief Strategy Officer (CSO), Rishishwar Logistics Pvt. Ltd.
Pradeep Kumar Sahoo
Author is a techno-managerial professional, currently working as oil and gas analyst in an organization of repute headquartered in London, UK. With a vast business research exposure in oil and gas market, he is very familiar with oil and gas business environment in different countries falling under Former Soviet Union, Asia, and Oceania. 

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