BUSINESS ECONOMICS ASSIGNMENT

WINTER SEMSTER

JANUARY- MAY 2020

SUBMITTED BY

Shivankar Sukul

Roll No. 1638

 TABLE OF CONTENTS

EFFECTS OF CORONAVIRUS CRISIS ON BUSINESS OPERATIONS.......................3

Automobile Sector..................................................................................................................3

Retail Sector and Supply Chain of Essential Commodities...................................................3

E-Commerce Sector................................................................................................................4

Tourism Industry and Hospitality Industry............................................................................5

Pharmaceuticals Industry........................................................................................................6

Food Delivery Applications...................................................................................................7

PLANNING FOR OVERCOMING FROM THE PANDEMIC.........................................8

Social Distancing in Business operations...............................................................................8

New Collaborations................................................................................................................9

Laying off, firing and hiring the employees-........................................................................10

Steps recommended to the Government by various stakeholders........................................11

Organisations are also making contributions for fighting pandemic....................................12

 EFFECTS OF CORONAVIRUS CRISIS ON BUSINESS OPERATIONS

In the turbulent times when the world is reeling with the effects of Coronavirus, business

operations do not remain untouched by it. As a precautionary measure to minimize the spread

of coronavirus, governments have imposed country wide lockdowns in several countries.

This move has adversely affected the economy1. With COVID-19 cases growing worldwide,

business leaders are scrambling to deal with a wide variety of problems, from slumping sales

and stalling supply chains to keeping employees healthy and making sure they can continue

working.2

Besides the direct impact on demand and supply of goods and services, businesses are also

facing reduced cash flows due to slowing economic activity, which in turn is having an

impact on all payments including to those for employees, interest, loan repayments and taxes.

Automobile Sector

The sale of passenger cars reduced by 51% to 143,014 units last month.3 While sales of

commercial vehicles crashed 88% to 13,027 units, those of two-wheelers fell 40% to 866,849

units.4 The coronavirus crisis also severely impacted the retail sector which is employs

almost 8% of the total employment in India, also has suffered a loss to the tune of 3.15 lakh

1
Coronavirus impact: Over 50% of India Inc sees impact on ops, 80% witness fall in cash flow Accessible at :
https://economictimes.indiatimes.com/news/economy/indicators/coronavirus-impact-over-50-of-india-inc-sees-
impact-on-ops-80-witness-fall-in-cash-flow/articleshow/74726229.cms?
utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
2
Coronavirus impact: Over 50% of India Inc sees impact on ops, 80% witness fall in cash flow Accessible at :
https://economictimes.indiatimes.com/news/economy/indicators/coronavirus-impact-over-50-of-india-inc-sees-
impact-on-ops-80-witness-fall-in-cash-flow/articleshow/74726229.cms?
utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
3
Passenger vehicle sales halve in March due to COVID-19 outbreak :Accessesed at
https://economictimes.indiatimes.com/industry/auto/auto-news/auto-sales-in-march-fall-45-due-to-
lockdown/articleshow/75120690.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
4
Passenger vehicle sales halve in March due to COVID-19 outbreak :Accessesed at
https://economictimes.indiatimes.com/industry/auto/auto-news/auto-sales-in-march-fall-45-due-to-
lockdown/articleshow/75120690.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
crores.5 However as per the recent notification of Ministry of Home affairs, the

manufacturing units located in Special Economic Zones shall be open from 20th April.

Retail Sector and Supply Chain of Essential Commodities

Though government has partially exempted the retail sector by allowing the retail of essential

commodities however a large chunk of retailers of essential commodities remain shut.

According to recent data 1.5 crore traders deal in essential commodities but only 40 lakhs of

them have been able to continue operations because of difficulties in obtaining passes from
6
the authorities and also non-availability of transport. Lack of manpower for meeting the

demands of the consumers also troubles the retail sector in India as nearly 80 percent of the

employees of traders have migrated to their villages at the time of earlier lockdown while

only 20 percent of employees are working with traders for supply of essential goods. Looking

at the bigger picture, these troubles faced by retail sector might have huge implication on the

general public as they also struggle to meet their daily needs of essential goods due to non-

efficient functioning of the retail sector.

The pandemic has had a major impact on the supply chains, as per recent data reported by

FICCI which was collected by conducting a nation-wide survey show that almost 60% of the

businesses indicate that their supply chains were adversely impacted due to the pandemic.

However, the government has decided that facilities in the supply chain of essential goods,

whether involved in manufacturing, wholesale or retail of such goods through local stores,

5
Covid-19 to pull back India's passenger vehicle and truck market by a decade Accessed at
https://economictimes.indiatimes.com/industry/auto/auto-news/covid-19-to-pull-back-indias-passenger-vehicle-
and-truck-market-by-a-decade/articleshow/75075507.cms?
utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
6
Coronavirus impact on India's retail sector Accessed at
https://economictimes.indiatimes.com/markets/stocks/news/coronavirus-impact-on-indias-retail-
sector/articleshow/75136711.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
large brick and mortar stores or ecommerce companies, will be allowed to operate without

any restriction on their timing of opening or closure from 20th April.

E-Commerce Sector

As per recent reports the e-commerce sector in India is also estimated to have lost $400

million worth of sales during the lockdown period, as operations were heavily disrupted

forcing several platforms such as Flipkart and BigBasket to temporarily suspend

services. The loss can be attributed to several factors, among them lack of availability

of manpower could be one as e-grocers such as BigBasket and Grofers were working at

only 30-40 percent capacity due to a thin staff. Apart from that the loss can also be

attributed to the block in supply chain which also resulted in a substantial dip in the

inventory levels of many e-commerce companies. However as per the study of NRF, the

Covid pandemic has brought a paradigm change in consumption patterns of consumers

who have now become more adapted to use of e- shopping. As the recent Mckinsey

study in China suggests, consumers are likely to opt for online shopping even after the

outbreak ends, especially for categories such as groceries and personal care. This trend

is likely to continue long after the lockdowns are called off as people would still be

apprehensive to visit crowded areas like malls or supermarkets. In short, the Covid-19

outbreak and 2020 will mark a tipping point for the adoption of ecommerce and mobile

commerce platforms even though they are facing a short-term loss. Understanding this

important role of e-commerce platforms, government has also has allowed e-commerce

retailers to continue their delivery of non-essential commodities as well.

Tourism Industry and Hospitality Industry

Based on the latest developments (quarantine measures, travel bans & border closures in most

of Europe, which represents 50% of international tourism, and in many countries of the

Americas, Africa and the Middle East), the evolutions in Asia and the Pacific and the patterns

of previous crises (2003 SARS and 2009 global economic crisis), UNWTO estimates

international tourist arrivals could decline by 20% to 30% in 2020. This would translate into a

loss of 300 to 450 US$ billion in international tourism receipts (exports) – almost one third of

the US$ 1.5 trillion generated globally in the worst-case scenario.7

To support their tourism sectors, countries may purposefully restrict outward travel and

encourage local tourism as a substitute (e.g. by easing private loans while industry itself will

work with price incentives). In essence, domestic travel and tourism will be expected to

substitute foreign tourism demand, at least for the time being. For some countries, this will

not nearly be enough, especially in terms of generating foreign currency revenues.

Additionally, it may well be that governments will support travel and tourism sectors more

directly through bailout packages but these details are not available at present and it is hard to

see how those with a narrow fiscal space will be able to afford those.

Even the Hospitality industry will not remain untouched with the effects of the pandemic. As

per the latest HVS Report, the overall revenue of the Indian hotel sector in 2020 is set to

decline by anywhere between USD 8.85 Bn to USD 10 Bn, reflecting an erosion of 39% to

45% compared to last year.8 Besides the actual business loss, the hotel owners will incur

losses due to fixed operating expenses, debt repayments, interest payments and several other

compliances required of them. In such a scenario with plummeting occupancies and revenues,

7
Impact assessment of the covid-19 outbreak on international tourism Accessed at
https://www.unwto.org/impact-assessment-of-the-covid-19-outbreak-on-international-tourism
8
COVID-19: Hospitality industry seeks PM's help Accessed at
https://economictimes.indiatimes.com/industry/services/hotels-/-restaurants/covid-19-hospitality-industry-seeks-
pms-help/articleshow/74708307.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
the hotel leaders, operators and staff across all levels are constantly in fear of layoffs and

salary cuts.

Pharmaceuticals Industry

The recent pandemic has posed a rather peculiar problem of supply chain with respect to the

Pharma Industry. It is to be noted that China is the world’s leading producer and exporter of

active pharmaceutical ingredients (API) by volume. A significant number of pharma

companies in India and around the world import a bulk of their raw materials from China,

which witnessed a lockdown of over two months from January 2020 to March 2020, while it

battled COVID-19. The Indian domestic pharma industry is highly dependent on imports,

with more than 60 per cent of its API requirements being imported. Of the total imports of

APIs and intermediates into India, China accounts for nearly 65-70 per cent. It is also

interesting to note that there are absolutely no alternatives of procuring API’s of several drugs

like cephalosporins except China.9 APIs, also known as bulk drugs, are chemical compounds

that are the most important raw material to produce a finished medicine. In medicine, API

produces the intended effects to cure the disease. For instance, Paracetamol is the API for

Crocin that gives relief from body aches and fever.

A panel was set up by the government under the Drugs Controller General of India (DCGI) to

deal with any API shortage repercussions. The panel has been closely monitoring the

situation since February. However, a shortage may be averted as several provinces of China

has yet again began the manufacturing. This fear has however red flagged the risks associated

with overdependence on China for raw materials of commodities as important as medicines.

Food Delivery Applications

9
India could avert medicine shortage as bulk drugs start arriving from coronavirus-hit China Accessed at
https://theprint.in/health/india-could-avert-medicine-shortage-as-bulk-drugs-start-arriving-from-coronavirus-hit-
china/378603/
During the lockdown, exemption was given to the Food Delivery apps. Hence the apps such

as Zomato, Swiggy and Dominoes continued to deliver food to the consumers while trying to

maintain the social distancing norms and ensuring hygiene of the delivered food. However,

recently when a case of a 19 year old delivery agent was discovered and around roughly 72

peaople were quarantined due to this, the question looms over the safety of food delivery.This

incident might bring a slump in the business of these applications.

 PLANNING FOR OVERCOMING FROM THE PANDEMIC

All over the world, policymakers considering how to respond to the Covid-19 pandemic

appear to face a stark trade-off between saving lives and preserving jobs and incomes. This is

particularly acute in developing countries like India where large groups of people have

extremely limited savings and are especially vulnerable to “economic shutdowns” of any

duration. Hence in order mitigate the economic losses incurred during the lockdown period,

businesses as well as the government has to take proactive steps to ensure that the livelihoods

of the people are maximum people are saved after the lockdown ends.

Social Distancing in Business operations

As several manufacturing units start their operations from April 20, the priorities of the

companies will be different as the would also have to take stringent measures to implement

social distancing. Recently the Ministry of Home affairs have also released the notification

and have advised that companies should ensure that they make standard operating procedure

for manufacturing units which mandates manufacturing units to observe some precautions

such as cleaning of common surfaces, mandatory hand washing and social distancing in

common places.10 Several companies such as Toyota Kirloskar Motor has developed a

comprehensive document that will guide firms in restarting operations after the COVID-19

lockdown. The document termed 'Restart Manual' can be used by any manufacturing firm to

reorganise and safely resume business operations while keeping health standards in place to

prevent the spread of Coronavirus.11 The standard operating procedure ‘Restart Manual’
10
Home Affairs Ministry’s SOP for maintaining supply of essential goods Accessed at
https://www.thehindu.com/news/resources/home-affairs-ministrys-sop-for-maintaining-supply-of-essential-
goods/article31190794.ece
11
How Toyota plans to restart operations Accessed at https://www.businesstoday.in/sectors/auto/how-toyota-
plans-to-restart-its-factory-after-lockdown/story/401204.html
contains lists out several precautionary steps such as thermal screening of workers,

maintaining social distancing and etc.

Food delivery applications such as Dominoes, Swiggy and Zomato have started contactless

delivery. Other than that, they also take host of measures like frequent thermal screening of

agents and frequent hand washing of all people linked with the supply chain. Moreover e-

commerce giants like Flipkart and Amazon have also opted for “contact less delivery” and

has also stopped taking cash on delivery so as to minimize the

New Collaborations

Sensing the need for finding alternative retail channels Tata Consumer Products has

collaborated with Flipkart to where the former’s distributors will list as marketplace sellers

on the former’s platform. Consumers can use the Flipkart platform to buy different combo

packs of essential products such as beverages (Tata Tea and Coffee) and food (Tata Sampann

Spices, pulses and others) offered by Tata Consumer Products. Tata Consumer’s distributors

listed online with Flipkart marketplace will undergo training for packaging and order

fulfillment and will process orders as per the standard operating procedures set by Flipkart,

the companies said on Saturday. Flipkart's marketplace supply chain will pick up these

essentials from Tata Consumer Company distributors and deliver them to customers using its

network of delivery executives.12 This one of a kind distribution agreement will certainly

help Tata in penetrating the markets in the times when people will refrain from going to the

crowded supermarkets and will instead choose the option of e-commerce.

Paytm on Friday announced the launch of novel coronavirus insurance policy in collaboration

with Reliance General Insurance. The general insurer, which had launched a dedicated

Covid-19 Protection Insurance cover few days ago, is being offered a group platform with a

wide range of sum-insured options from Rs 25,000 to Rs 2 lakh.

12
Laying off, firing and hiring the employees-

1. In India, Online insurance firm Acko has laid off around 50 employees, according to a

report by the Economic Times.

2. Online travel firms like MakeMyTrip, Cleartrip and hospitality firms Fab Hotels have

also laid off numerous employees amid the lockdown.

3. Millions of Americans filed for unemployment last week, so it is clear companies across

the country are instituting very real and difficult cuts. Employers are wary of letting their

workers go right now after fighting so hard to find and retain them during one of the

tightest labor markets in recent history,

4. While Macy’s announced it would be furloughing the majority of its store-based

employees as a result of widespread closures. Amazon announced plans to hire 100,000

additional employees to meet rising demand in online ordering. Walmart and Kroger said

they have each hired tens of thousands of new employees.

5. In India, state-run Air India has announced reduction in allowances of executive pilots,

cabin crew and officers

6. Apollo Tyres, announced that its top management will take a cut in compensation.

7. “With a great deal of reluctance and a deep sense of regret, we are therefore instituting

pay cuts for all employees excluding Bands A and B, starting 1 April 2020," IndiGo’s

chief executive officer (CEO) Ronojoy Dutta said in an internal email.

8. Exotel has put a salary cap at Rs 40,000 for the next two months. To show appreciation to

employees the company is offering compensation in the form of ESOPs.

9. Droom, a used car online marketplace, has said that it will be cutting 15 per cent salary in

April. However, it denied layoffs.

10. India’s biggest IT Services exporter, TCS has announced that they will not layoff any

employee however they also announced that no salary raises will be provided to the

employees as well.

11. International Air Transport Association (IATA) noted that more than 20 lakh jobs are at

risk in India’s aviation sector.

12. SpiceJet announced a company-wide pay cut for its employees for the month of March

2020 to tide over the unprecedented crisis thrust by the Covid-19 pandemic. The airline

has implemented a 10-30% pay cut for all its employees across the top- and mid-rung

levels

13. Vistara, a joint venture between Tata Sons and Singapore Airlines, , announced a similar

that 30% of its 4,000 employees will go on mandatory leave without pay between April 1

and April 14 to curb costs.

14. The pandemic has also adversely impacted the startups as over 100 people were asked to

leave the Bengaluru-based scooter rental startup Bounce. Insurance startup Acko, too,

reportedly let go of 45-50 employees.

Steps recommended to the Government by various stakeholders

1. The Reserve Bank of India (RBI) need to support the Indian industry and economy at this

juncture by bringing down the cost of funds further through reduction in policy rates, say,

by close to 100 basis points.

2. Banks should be given a flexibility to reschedule payment terms without the need for

provisioning.

3. With the corporate bond and commercial paper markets are facing liquidity challenges,

the RBI should intervene, either directly or through the commercial banking system, to

ensure adequate flow of funds into the market.

4. The government should not cut its capital expenditure plans despite any shortfall in tax

collections,

5. The Insolvency and Bankruptcy Code (IBC) should be suspended for a short period for

sectors like aviation and hotel, that are severely impacted due to Covid-19. 13

6. The government should provide a blanket moratorium of three months for tax payments

and defer all tax payments until 30 June 2020. All payments of tax within this date should

be deemed to be payment on time and all the necessary consequences shall follow

accordingly

7. Immediate waiver of minimum guarantee clause by electric/power/fuel companies and

this is the biggest problem as all industries are closed.

8. Companies should be permitted to prepare and present financial statements for a period of

15 months i.e. for the period beginning 1st April 2019 to 30th June 2020 instead of 12

months, i.e. April 2019 to March 2020. –

9. Companies should not be required to prepare financial statements for the quarter ending

31st March 2020 since presentation of accounts for quarter ending 31st March 2020

would not be possible.

Organisations are also making contributions for fighting pandemic

1. Organizations around the world, including the Forum and its partners, are coming

together and finding innovative ways to minimize the impact on public health and to limit

disruptions to economies and supply chains.

2. Here are just some ways corporations and other organizations globally are finding new

ways to tackle the pandemic.

Coronavirus impact: Over 50% of India Inc sees impact on ops, 80% witness fall in cash flow Accessible at :
13

https://economictimes.indiatimes.com/news/economy/indicators/coronavirus-impact-over-50-of-india-inc-sees-
impact-on-ops-80-witness-fall-in-cash-flow/articleshow/74726229.cms?
utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
3. Unilever has donated free sanitizer, soap, bleach and food worth €100 million to the

world’s neediest - with half of its donation being delivered at speed through the World

Economic Forum’s COVID Action Platform.

4. Indian Hotels Company Limited (IHCL), the hospitality business of Tata Sons have

opened the doors of their luxurious hotel chain of The Taj Group for medical

professionals treating COVID-19 cases in Mumbai. Moreover Tata Group and Tata Sons

have announced to donate 1500cr for the PM Cares fund.