Disruption in Indian Economy due to COVID-19

The COVID-19 pandemic has spread at an alarming pace, infecting millions of people and bringing economic activities closer as countries have imposed tougher restrictions on the movement to stop the spread of the virus. Long-term horizons, deep investment arising out of the pandemic, low investment, permanent capital erosion, lost work and schooling and fragmentation of global trade and supply relations are expected to lead to erosion of human capital.

Talking about the economics of India, COVID-19 has been a very disruptive factor. Since the announcement of the economic package in mid-May, India’s GDP estimates had settle further in negative frame, indicating a deep recession for the nation. It is also said that this may be India’s worst recession period since its independence in the year 1947. Between March and April, unemployment in the country rose from 6.7% to 26%, nearly four times the pre-epidemic number. An estimated 140 million citizens have lost their employment during lockdown in India.

Graph Demonstration

The demonstration below shows, market capitalization in India decreased significantly from December 2019 to August 2020, partly as a result of a net outflow of over $ 5 billion in foreign investment from January to April.

The graph showed the sectoral impact during the crisis. Now we will discuss some triggers and problems coming out of this situation.


Reduced Cash Flow

Businesses that are today struggling profitability those who have low cash reserves or unstable cash flows are particularly risky. However, even businesses that look good but their financial size cannot be immune, depending on how the situation progresses, and the way it takes to return to normal for the demand and supply chain. The country is already experiencing a slowdown in growth. In the third quarter of the current fiscal year, the economy grew at the slowest 4.7 percent in six years. 53 percent of Indian businesses indicate effects of Coronavirus pandemic on business operations even in the early stages.

The retail segment is expected to be the toughest with a 45-60% decline in net operating income of the mall operators in FY 2021. In addition, revenue share is likely to remain depressed throughout the year. Additionally, there is likely to be a lack of discipline throughout the year in the rental payments of tenants and therefore a healthy balance sheet liquidity will be necessary.

Ideologically, there are variable and fixed costs. If sales declines, variable costs are reduced because lower sales volumes are required, in total, less material and labor and therefore lower payments. Nevertheless the fixed cost remains the same and it is more difficult to make changes in the short term. Business owners are still required to pay rent, even for a closed store. So depending on the cost structure of the company, it will have more or less possibilities to reduce cash outflow. However, variable costs also will not disappear. Affected business owners experience a rapid sales decline. But to deliver goods for sale today, they must already have them in stock. There is a time lag with current payment terms, say, the previous month’s bills should still be paid and in the next few weeks. Another major cost factor is labor cost. There is a need to pay wages. Even with the harsh decision to lay off employees quickly, two weeks of pay may still be outstanding. And at the end of the month or quarter, more bills arrive. When the sale is closed the payment is neither automatically nor immediately closed, prompt action is necessary to stop the cash flow. This is why federal, provincial and native governments announced massive liquidity support for business owners.


The sudden halt of global travel during the COVID-19 crisis, aside from delays in private trips and holidays, it had a major impact on businesses in the regions. The Indian tourism and hospitality sector, which is badly affected by COVID-19, is staring at a potential job threat to around 38 million workforce. The hotel, aviation and travel sectors together can suffer a loss of around 85 billion according to IATO estimates due to simultaneous travel restrictions and mass cancellations. The impact is likely to be felt on both white and blue collar jobs.

Travel demand, particularly air travel, is a high discretionary component in both the business and leisure segments, resulting in significantly higher periods of economic growth and vice versa. This ‘multiplier effect’ can be clearly seen in India, where domestic air passenger growth in the 10-year period from 2008-18 was 1.6x of GDP growth over the same period. This suggests that as GDP growth returns, we can expect the travel sector to return to> 10% annual growth, making it one of the fastest growing sectors in India in the medium term. Foreign arrivals fell 66.4% year-on-year in March 2020.

Companies with a workforce often went on trips – as well as airlines and hotels that depend on revenue from that trip, particularly being affected. As companies continue to enforce travel restrictions and workers resort to virtual meetings, travel-industry players seem to be retreating from the crisis, but it can be a long road to recovery.

Physical Distancing

While COVID-19 is having a devastating effect on the economy, its impact on industries is likely to be asymmetric. High contact-intensive industries which rely more on face-to-face interactions are likely negatively affected more. On one hand, these industries may experience a drop in demand for their products as consumers want to avoid contagion (Eg: beauty salons, food services, and dentists). On the other hand, workers in these industries may find it difficult to work remotely and thus are more likely to be affected by recent social distortions policies.

But the decline of contact-intensive industries may also affect industries that rely less on close physical relationships through input-output linkages; Thus, these links propagate early shocks through the rest of the economy. For example, contact-intensive industries may depend on intermediate inputs from other sectors, or such areas may rely heavily on inputs from contact-intensive industries.


How to keep the business running & attract customers?

The clarity of the resources we have and how much can be planned with them is important. Without it, a mismatch occurs between the resources held and what we want to achieve. Dream big but plan and execute within the available resources. Some of the key resources that need to be considered are time, money, manpower and machinery. A good balance is maintained by the business owners so that all these resources can be better utilized to realize profits.

It is important that you focus on your customer relationships as you move forward in your company. Make sure you know your customers, that you truly connected with them either via video / voice calls instead of using only impersonal email. Especially, the topline managements are facing problems while cracking deals and even during communication with the employees of middle line and bottom line management. Make sure that you are aware of the individual needs of each customer, so that you can help them and provide a service that will work particularly well for them – products and services are something that customers have in the long run will keep coming back to you.

How to be more cost effective?

The severity and duration of adverse business conditions are unclear. Current issues include:

– Highly fluctuating cash flow performance of the business (lower revenue, delayed collections).

– There is concern as to whether the funding lines have sufficient capacity to withstand the decline in commercial performance.

– Concern over financial covenants and other potential violations may further restrict access to funds.

– Out-of-the-money derivative positions recently given interest rates to fall.

– Difficulty in paying suppliers and payroll due to short-term cashflow shortages.


There are various ways to be
cost effective. They are mentioned as follows:

Production Cost Reduction

As a leader, you are always looking for ways to cut down on material costs and optimize your resources. Here are a few suggestions:

– Instead of sending it to the recycling center, try selling leftover cardboard, paper and metal. Also, consider ways to use your waste to make another product.

– Make sure you are getting the most out of your production real estate. Centralizing or consolidating the space required for production. Lease unused space for another business or individual – it can be as small as an office or as large as a warehouse space.

– To adjust and optimize the use of available resources, track and measure the operational efficiencies of your business. Set performance parameters that reflect your efficiency goals and provide incentives on meeting those goals.

Reduced Financial Expenditure

Check your insurance policies and financial accounts for places to save money.

– Save money on insurance by comparing providers for the most competitive rate; then
ask your current lender or insurance provider to match that rate.

– Consolidate insurance policies or bank accounts if possible.

– Evaluate insurance policies to ensure that you are not over-insured or duplicating coverage.

– Do not take unnecessary debt. Perform a thorough cost-benefit analysis and forecast the future when considering business expansion. Consider the impact of debt payments on opportunity costs and cash flow. Additional debt affects a company’s rating, interest rates, and future borrowing capacity.

Maximize the skill of your employees

Assess current use of employee experience and skills. Give employees responsibilities with the most skills and competencies in those areas. Do not use expert sales people to “number” people for word processing or design tasks. It is often necessary for one person to be responsible for many types of tasks, but consider exchanging some of those tasks with another person that shows greater efficiency.

Pay attention to your Quality

Whether or not quality sells as products or services. Satisfied customers increase sales through referrals and repeat purchases. High quality and a solid reputation allow you to charge higher prices, which equals higher revenue and a healthier bottom line.

Path leading to Sustainability of Business post COVID

How to drive your Business post COVID- 19?

Focus more on empathy in your service offering

As a business community, we need both, appreciate the turmoil our consumers have faced and experienced, and understand the consequences that have arisen changes in consumer confidence and behavior. We have a responsibility to the broader well-being of our communities in which we work to do more, are more sensitive to their needs, and continue to contribute to furthering our economy.

Prioritize more and more innovation on speed and scale

Instead of stepping away from innovation during this period, we believe the opposite is true. For businesses to emerge stronger, more operationally flexible, and more relevant to our new world, they must act boldly and confidently with a more optimistic outlook. Additionally, they must take a more agile approach in how they operate their business model to become more human-centric in order to work in a more profitable way towards the needs of consumers. Now is the time to prioritize more and more innovation in terms of the products and services that we offer to our consumers, but at the same time to create new opportunities to benefit our employees and our consumers and the community. Bring it mainstream in their thinking through the mindset of empowering employees.

Creating certainty in times of uncertainty

In times of uncertainty, the enemy of every business is hesitant to act, is inconsiderate and becomes risk averse. The results are two-fold: the world passes you by making your business proposition less relevant, and secondly, your competitors can leap ahead of you and create limits as they seize market share, create business opportunities, and become more relevant than you. Therefore, despite a challenging period to float in uncertainty, we must embrace change rather than fear it, and form the basis of certainty for our employees to act with certainty for the best interests of our consumers.

Managing the Cash-Flows

Under normal business circumstances, companies focus primarily on profits and losses – managing the bottom line, raising the top line. Routine back-office activities like paying bills and converting receivables into cash are often given. Within the current abnormal business conditions, smart companies are diverting their attention from the income statement to the balance sheet. Of the three elements of supply chain working capital – payables, receivables, and inventory, supply chain executives have an inclination to focus on inventory. But, to cut down working capital requirements during challenging times, it is important to apply a coordinated approach that addresses all three areas.

Reducing your variable costs is often a faster way to reduce your cash outflow immediately than focusing only on your fixed costs. Of course, there are specific variable cost-reducing levers, such as travel restrictions and non-essential meeting restrictions, rent freezes, and discretionary spending like recreation. When labor is an important cost line in your business, consider situations that can help reduce expenses in order to avoid a situation where layoffs are needed. For example, look for opportunities to reduce contract labor and redistribute work to your permanent workforce. Encourage employees to take available holiday balances to reduce liabilities on the balance sheet. And, if necessary, consider making voluntary, or even involuntary offers to conserve cash, leaving without payment.

Customer Engagement

Making customers connections digitally

Prior to COVID-19, many brands adopted experiential retail as a way to increase customer loyalty and sales. Most non-essential stores are not fully reopened, with retailers finding innovative ways to digitally connect with their customers online. The social media platform provides ways to initiate conversations. We have seen many examples where retailers are offering styling advice to offer cooking or fitness classes as a way to connect and engage with brand loyalists. Other retailers are quickly engaging with customers by adopting live streaming video chat with local store employees. These live sessions offer the customer a chance to connect with anyone from the brand, browse the latest assortment, and answer any questions they may have.

Social media strategies

Over the past few months, social media has become an integral part of every brand’s engagement strategies; And for all the correct reasons. It has been observed that the time spent on different platforms is greatly increased and can be taken advantage of. From engaging with new audiences across geographies, hosting online interactive sessions and competitions to using existing tools to extend engagement, the potential is wide, and if accomplished well, positive brand engagement can be seen. A great example of how social media can be used to connect with audiences are virtual concerts, which have become highly popular today. In India, a virtual concert was held where the industry’s biggest names came together under #IForIndia, supported various charities and raised funds through Facebook Live Concert. Internationally, music artists have joined the campaign with WHO and Global Citizen, #TatelyAtHome using music to unite people feeling alone at the time of lockdown, including John Legend, Chris Martin, Sean Mendes and Lady Gaga . This is a great example of how celebrities are using the power of their brand to not only support a social cause, but also enhance the value of their brand.

Use of Influencers

These are the people who can influence a large audience. They can be used in a sensitive way to stay at home, or with your brand, to make a certain lifestyle change. Influencers are also highly effective in spreading COVID-19 related safety messages, which are also opportunities that can be discovered. In addition, it is important to note that engagement strategies are never a ‘one-size-fits-all’ approach. What works for a brand may not work for you. Brands should also be aware of the limitations they are facing when planning their user engagement strategy.


Jeel Jain, is a B.Com. graduate currently pursing PGDM degree from Som-Lalit Institute of Management Studies. She is a quick learner along with the passion of evolving new things. As an intern at Jagdish Hirani & Associates her contribution in the field of research has helped her in exploring different fields and enhancing her knowledge. 

Parth Hirani, is leading strategic advisory practice at J.Hirani & has helped various organizations align strategies across continents. A social & collaborative sapien by nature.  He enjoys being a full time “dreamer” & loves challenging “possibilities”. 

Success mantra- “We believe it’s possible; while maintaining flexibility on “How” we are “Rigid” on our “Goals”

About J.hirani: J.hirani is a Strategic Transformation team which works as a growth partner for different organisations in various industries by providing services like Agile transformation, Scenario mapping, Strategic alignment, Balance scorecard, Digital transformation, Incubating new ventures, Operation excellence and Aligning human capital.

© J.Hirani, Disruption in Indian Economy due to COVID- 19, September 2020. All rights reserved.

Leave a Reply

Your email address will not be published. Required fields are marked *

Balanced Scorecard in FMCG, Ceramic and Construction Industry

Balanced Scorecard in FMCG, Ceramic and Construction Industry

Balanced Scorecard & History Balance Scorecard was first introduced in 1992

6 Rules for a promoter to successfully hire professional CEO

6 Rules for a promoter to successfully hire professional CEO

In one of my conversation with client, he mentioned that now all the problems