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Pray For India Inc: Coronavirus destructs India's aviation, tourism, auto sectors

Hospitality to lose Rs 30,000 crore revenue; aviation losses to add up to Rs 8,200 crore; auto sales down 70 per cent; restaurants fear 15 lakh job losses

Vivek Punj | March 23, 2020 | Updated 00:57 IST
Pray For India Inc: Coronavirus destructs India's aviation, tourism, auto sectors
A police officer stands guard in Mumbai as economic capital of India observes self-isolation under Janta Curfew (Photo credit: PTI)

Tourism, hospitality, aviation, transportation and restaurant businesses have ground to a halt nationwide as India braces up for the third stage of the potentially intense coronavirus outbreak since case zero on January 30.

While hospitality is projected to report over Rs 30,000 crore of loss of revenue during 2020, India's aviation sector will report losses in excess of Rs 8,200 crore in the coming quarter as international and domestic flights stay grounded.

The brunt of these shutdowns will be borne by the unsuspecting employees across sectors impacting lives and livelihood. The National Restaurants Association of India (NRAI) has warned that even 10-20 per cent job losses among its 7.3 million employees in restaurants across the country would mean up to 15 lakh unemployed. Something that would have severe social consequences.

Just as economies around the world have notched up coronavirus war chest totalling nearly $3.5 trillion-bigger than the size of the Indian economy, Prime Minister Narendra Modi announced a Task Force to decide on an economic package for India as well. Meanwhile, apex industry association CII has sought Rs 2 lakh crore to be pumped into the Indian economy as a stimulus to ride over the COVID-19 crisis.

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Novel coronavirus has come at a particularly inconvenient time for the Indian economy as quarterly GDP growth rate is at a multi-year low of 4.7 per cent. In a recent press conference, RBI Governor Shaktikanta Das admitted that India is not immune to the pandemic and could face slowdown in domestic growth. This crisis has even raised concerns over the country's economic health in the next financial year.

Sectors across the board are feeling the pinch as anxiety over the pandemic increases. Panic buying has increased demand in fast-moving consumer goods (FMCG). OTT platforms have seen a sharp rise in subscriptions and usage as more employers are allowing employees to work from home. But that's about it. On the flipside, aviation, tourism, hospitality, automobile, gems and jewellery, apparel and even pharmaceutical companies are staring at drastic reduction in business.

Here is how coronavirus is ravaging through some of India's most prominent industries one after another:

Aviation

Airlines have got a raw deal with the coronavirus outbreak. With travel and visa restrictions in place, Indian aviation sector saw fares crash by as much as 40 per cent on certain air routes. Several air carriers, including Vistara, GoAir, SpiceJet, have suspended international flights amid dwindling demand and fares.

As per global aviation consultancy CAPA, private domestic carriers are expected to post consolidated losses of up to $600 million (Rs 4,500 crore) in just one quarter. As for national flag carrier, estimates suggest that it could lose Rs 3,700 crore during the same period. This pegs the overall estimated losses to Rs 8,200 crore. The losses will be primarily due to curtailed flight schedules, slide in new bookings, large-scale cancellations, and rescheduling of flights.

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Hospitality

Restrictions on travel have directly impacted the hospitality sector. According to estimates by hospitality consultancy Hotelivate, hotel chains in India are staring at a loss of $4.2 billion to $4.7 billion in revenues due to coronavirus outbreak. Loss to the organised market, which is about 5 per cent of the total lodging sector in India, is estimated to range between $1.3 billion and $1.55 billon. This amounts to an erosion of 27-32 per cent of the overall revenues as compared to the previous financial year.

Disruption due to coronavirus could result in 18-20 per cent erosion of nationwide occupancy across the sector, and 12-14 per cent drop in average daily rates (ADRs) for the entire 2020. The hospitality sector is also likely to be impacted by large-scale cancellations and drop in room rates.

Tourism

Tourism sector which accounts for 10 per cent of India's GDP is bleeding with growing visa restrictions and new travel advisories coming into play. "...suspension of visas from all countries to India is expected to have a substantial impact on the foreign tourist arrival in the country which was already witnessing a drop due to the prevailing situation. We have received close to 35 per cent cancellation queries from travellers planning their trip to foreign destinations," Sabina Chopra of Yatra.com recently told Business Today.

Low numbers of foreign tourist arrivals has impacted business of luxury hotels in Udaipur, Goa and Kerala, as room rates in Indian hospitality sector in India have tanked by nearly 18 per cent.The situation is even worse in the aviation sector where fares have crashed as much as 40 per cent in the past week on a lot of routes.

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Auto

With more focus on stocking essentials, buyers have stopped going to car dealerships. According to industry body Federation of Automobile Dealers Association, footfalls in dealerships have gone down 45 per cent by the mid of March. This has led to a 70 per cent decline in sales. The industry that is preparing for transition to BS-VI emission norms from April 1, 2020 has a new problem at its hand. There are no buyers for the BS-IV cars sitting in the inventory.

"In the past week there has been drastic drop in sales and customer walk-ins have reduced to a trickle as caution sets in due to fear of spreading of the virus. Counter sales has fallen by 60-70 percent across auto dealerships in these past few days," FADA President Ashish Harshraj Kale recently said. "The situation has worsened... with partial lockdown situation in many towns and cities and a few district magistrates have started issuing notices of closure of shops and establishments including auto dealerships to stop the spread of virus."

The Supreme Court has already refused to grant any relaxation for liquidating the BS-IV inventory. In other words, no BS-IV vehicles can be registered after March 31, 2020 and dealers will have to sell them before then. FADA has approached the apex court once again with its plea for an extension in deadline for BS-IV vehicle registrations. Some dealers even risk closure if their BS-IV stocks are not cleared.

Even the transition to BS-VI regime seems difficult as supply of parts and vehicles from China has been hit due to coronavirus. Overall, the industry is looking at a very bleak outlook for March.

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Apparel

According to A Sakthivel, Chairman of Apparel Export Promotion Council, the deeply integrated global value chain of the apparel sector has been impacted by disruptions in both exports and imports.

India exported $16.2 billion worth of garments in 2018-19. The apparel sector contributes to 43 per cent of India's textiles exports in value terms and enjoys 5 per cent share in the country's overall exports. Apparel sector is also the largest employment provider after agriculture and employs 129 lakh workers, 65-70 per cent of which are women.

But growing restrictions over coronavirus are likely to take a toll on orders and import of raw materials. Buyers staying away from shops due to fear of infection, at a time when apparel makers are trying to introduce new spring summer collection in the market, has put some pressure on the apparel industry.

Amid growing signs of trouble, India's apparel exporters have asked RBI to take steps to ease the working capital crunch faced by the industry in the wake of coronavirus outbreak. They want the apex bank to facilitate faster clearance of banking and packing credit.

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Pharmaceuticals

Initially, Indian pharmaceuticals industry was facing troubles in importing raw materials and active pharmaceutical ingredients (APIs) from China. Although this snag has been resolved, uncertainties have grown on the exports front, especially to the markets in US and Europe. With travel restrictions between Europe and the US, Indian pharma companies are unsure of product offtake in these regions.

"Most pharma companies are export oriented with high exposure to US and Europe. Their economies are expected to slow down with precautionary measures on trade, which could have a cascading effect," said Geojit Financial Services.

And within India, although the inventory levels are marginally down, there are sufficient stocks across categories for more than a month. Industry bodies have ruled out any price rise for consumers as medicine prices are governed by price control order and cannot be passed on to customers.

Meanwhile, the recent decline in crude oil prices could bode well for pharmaceutical manufacturers in India. "At the same time prices of raw materials like APIs have increased due to cut in availability from China which is the largest source, impacting profitability of the sector. On a positive note, these raw materials are derivatives of crude oil and the current huge drop in oil prices will benefit them in the medium-term as businesses normalise," the agency added.

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Gems and jewellery

Retail sales of gems and jewellery in India have tanked 80 per cent in last 10 days as buyers are not going to retail stores. On export front, business fear losses could go as high as 50 per cent amid movement restrictions.

"For the last ten days, people have not been coming to retail outlets to buy jewellery and many have shut shops. We estimate a loss of 80 per cent business and this may worsen in the coming days as more restrictions are announced. We don't know how long it will continue," said Ananthapadmanabhan, chairman, All India Gems and Jewellery Domestic Council (AIGJC)

FMCG

Unlike most sectors, FMCG has been an unlikely gainer from the outbreak. Panic buying has increased consumption in FMCG sector across the country. Consumers have been hoardingbasic food items such as milk, curd, rice, atta, oil and lentils, as well as personal care products such as soaps, handwash and sanitisers due to fear of a lockdown.

Moreover, online grocery platforms are witnessing a huge influx of buyers as they are avoiding brick-and-mortar stores amid the coronavirus contagion. E-commerce platforms have been complaining of running out of stocks of necessities especially products such as handwash and hand sanitisers.

This has led to FMCG companies stepping up production to keep up with the demand. Amul has increased its production by over 20 per cent in order to meet the increased demand. Godrej Consumer has shelved its plans to increase soap prices and is instead going all out to increase production and cater to increased demand. Similarly, ITC has doubled production across its food and personal care business to ensure availability. However, experts have predicted that ramping up production may not result in higher revenue growth for manufacturers.

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OTT platforms

With companies and government announcing work from home and governments shutting down cinema halls and multiplexes, OTT platforms have seen a rise in subscribers and usage As restrictions remain in place, and people stay at home, this trend is expected to pick up. However, putting out content on schedule will be a problem as production process is being hampered.

What analysts say

Earlier this week, in view of the coronavirus outbreak, ratings agency Moody's Investor Service slashed India's economic growth projection for financial year 2019-20 to 5.3 per cent. Standard & Poor's Global Ratings went on to lower India's GDP growth estimate for FY20 to 5.2 per cent. Both had similar reasons - disruptions in global economy due to coronavirus.

"On the demand side, inoperability analysis for three sectors namely Transport, Tourism and Hotels show significant impact on demand and hence output. On an aggregate basis, we estimate that the impact of a 5 per cent inoperability shock could be 90 basis points on GDP from Trade, Hotel and Transport and Transport, Storage and Communication segment that could be spread over FY20 and FY21, with a larger impact in FY21," a recent SBI Ecowrap report said.

Meanwhile, government increased duties on petrol and diesel by Rs 3 per litre - the steepest hike in eight years - after global oil prices fell. The idea is to shore up money which can be used to bear the emergency expenses arising due to coronavirus, and rollout a fiscal package to help badly hit sectors tide over these tough times.

"The increased excise revenue from oil should not be used for bridging the fiscal gap and pleasing the markets; rather sound economics demands it must be used as a fiscal package for income support to the people working in the unorganised sector who are already facing the brunt of loss of jobs," SBI Ecowrap report on Thursday said.

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