Assessing the Financial Impact on Industries due to Covid-19

Ashish M. Shaji

11 Jul, 2020

This year countries all across the globe have witnessed unprecedented turmoil due to the impact of the Covid-19 pandemic. Many industries have been hardly hit by its impact, with thousands of people losing their jobs, and the extent of the financial impact on the global economy is challenging to assess. 

Resumption of businesses and industries

The pandemic had caused many nations to be under lockdown, which meant that industries were shut and people were forced to be confined to their homes.

However, the businesses can’t be held up for too long, lest there be no economy. Therefore some of the industries have resumed their businesses to ease the financial impact on it and are hoping to bounce back again from the adverse effects of the pandemic. Industries have been resuming operations but in a staggered manner.

Assessment of financial impact on various industries due to Covid-19

In this segment, we shall try to assess the impact of Covid-19 on different industries.

• Drugs and Pharmaceutical Industry

The impact of the pandemic on drugs and the pharmaceutical industry has been moderate.  It is expected to recover in a short period. Production is projected to recover quickly as the government is providing assistance for essential commodities.

In this sector, businesses have resumed operations in China, which accounts for close to 85 % of India’s active pharmaceutical ingredients import. This minimizes the supply chain disruptions to some extent, if not great.

• Livestock

The impact of the pandemic on the Livestock industry has been severe. Demand has significantly increased and is expected to witness a continued surge. Prices may also increase post the pandemic. It is expected to recover in a short period. 

• Retail (non-food) Industries and Wholesale (non-food) Industries

The impact of the pandemic on retail industries as well as on wholesale industries has been severe, but the sales of essential items may recover quickly. However, the sale of non-essential items may take relatively more time to recover. Stifled demand is expected to aid a faster recovery.

• Textiles Industry

The impact of the pandemic on the textile industry has been moderate. It is expected to recover in a short period. Discretionary spending is expected to stay subdued for at least one quarter. Whereas demand for essential commodities such as masks, gloves, rolls, gauzes, etc., will not be impacted negatively.

In case where demand for low priced products revives after a quarter, the uncertainty and slow growth or loss of income may obstruct a quick recovery for the next two quarters.

Exporters may take more time to recover until recessionary pressures in the US and European countries wither.

• Logistic Industries

The impact of the pandemic on logistics industries has been severe. It is expected to recover in an even period. The slowdown in the tourism sector will have a substantial effect on passenger traffic. Heightened risk aversion is expected to prolong the recovery.

Cargo traffic is supposed to gather pace as businesses resume their operations across the globe. Nevertheless, low consumption expenditure may delay the recovery period.

• Metal Industry

The impact of the pandemic on metal industries has been moderate. It is expected to recover in an even period. The metal industries have strong forward linkages to various sectors like automotive, construction, and infrastructure. Therefore a slowdown in the business activity in these sectors may bring down the demand for basic metals.  

• Automotive Industry

The impact of the pandemic on automotive industries has been high. It is expected to take a longer period to recover. Demand for cars is likely to be delayed or dropped as the confidence level among the consumers has been low, economic activity has been subdued, lower disposable income, and higher prices.

The demand for commercial vehicles will depend on the growth in Gross Material Products (GMP), which is expected to be slower. Component dependency is expected to create supply-side disruption.

• Entertainment Industry

The impact of the pandemic on the Entertainment Industry has been severe. It is expected to take a longer period to recover. One of the topmost concerns would be the likely continuation of social distancing measures to avert the risk of any relapses.

Revenues from advertisements will depend on the revival of the aggregate demand in the economy.

• Banking Industry

The financial impact of the pandemic on the Banking Industry has been high. It is expected to take a longer period to recover. The Reserve Bank of India stated that Non-Performing Assets (NPAs) might increase to 10.2-10.5% by the month of September 2020. The outbreak of coronavirus will increase this figure.

With virtually all companies being impacted with demand, the banks in the future will experience difficult times in loan settlement, interest collection, and lending. RBI and banks have a task at hand to revive the economy after the pandemic subsides.

• Tourism Industry

The financial impact of the pandemic on the Tourism Industry has been severe. It is also expected to take a longer period to recover. Even after the travel restrictions are lifted, foreign as well as domestic tourist movements are expected to be low due to heightened risk aversion, social distancing measures, and lower disposable incomes.

• Hospitality Industry

The impact of the pandemic on the Hospitality Industry has been severe. It is also expected to take a longer period to recover. Tourism slowdown will also affect the hospitality industry. Occupancy rates may remain very low till the first quarter of next year.

Many businesses would be looking to cut down on travel and accommodation costs for their employees to improve the situation.

• Electronics Industry

The financial impact of the pandemic on the Electronics Industry has been high. It is expected to take a longer period to recover. The need for white goods and other high-end consumer durables may continue to remain impaired as consumers may postpone their purchases due to lower disposable incomes and uncertainty.

Around 50-60% of the products and 70-80% of the components are imported, and the shortage of electronic goods components from China is expected to keep prices higher and thus will impact the demand.

• MSME Sector

The financial impact of the pandemic on the MSME (Micro, Small, and Medium Enterprises) sector has been high. It is expected to take a longer period to recover. Recessionary pressures across countries are expected to have a direct impact on global exports. For your information, MSMEs contribute to more than 40% of India’s exports. 

MSMEs may experience severe liquidity issues due to delayed payments from their customers. The strain in the banking sector may increase the credit gap for MSMEs.

• Aviation Industry

The financial impact of the pandemic on the Aviation Industry has been high. It is the first sector to be impacted globally by the coronavirus. In India also it has been affected by travel restrictions still in place. Various airlines have undergone massive losses due to this and may require a considerable investment to recover operations.

As per a recent report, the aviation industry has accrued an estimated loss of mammoth 8,200 Crore Rupees. It may be noted that this loss covers national flag carriers as well as the domestic carriers.

Conclusion

Also, read: Covid-19 Impact on Heath and Life Insurance