India Inc expects 2 quarters of pain

Indian Inc foresees the coronavirus-inflicted pain to last over a couple of quarters with looming job losses, sharp decline in revenue and profit growth due to the lockdown and the resultant impact on GDP growth.

Consulting firm KPMG predicts India's growth may fall below 3 per cent if the lockdown is extended. It said the lockdown is likely to have a sizeable impact on the economy, as it could impact three major contributors to GDP-private investment, consumption and external trade.

According to a snap poll of 200 CEOs across sectors by the Confederation of Indian Industry, the coronavirus outbreak and the subsequent countrywide lockdown have deeply impacted the domestic economy with a majority of the firms expecting a significant decline in their top line and bottom line in the current and the previous quarters.

The survey results indicate that a significant majority of the firms expect revenues to fall more than 10 per cent and profits to decline more than 5 per cent in both the current quarter (April-June 2020) as well as the preceding quarter (January-March 2020).

Further, a majority of the companies claimed that their inventory was lying idle and there could be a demand slowdown in the post-lockdown period.

On the jobs front, corporates are expecting there could be job cuts ranging from 15 per cent to 30 per cent once the lockdown ends.

According to KPMG, the severe disruption in demand caused by the pandemic has created large cash flow gaps for corporates and tight financial conditions will make it difficult for them to fill this gap through market borrowing.

"Abrupt stop of urban activity could lead to a steep fall in consumption of non-essential goods. The impact could be even more severe if domestic supply chain disruption caused by the 21-day lockdown were to affect the availability of essential commodities," the KPMG report said.

Sector-wise, supply chain restrictions and expected labour migration may be impediments to the recovery of the petrochemical sector. Textile and apparel production is likely to fall by 10 to 12 per cent in the April-June quarter. The sourcing of auto components may get costlier owing to a disturbance in the supply chain across the globe, the report said. However, the Indian auto component industry may recover in the medium to long term as an alternative source of supply, it said.

The tourism and hospitality industry may see a potential job loss of nearly 38 million, nearly 70 per cent of the total workforce. The housing sector may see weak demand with a significant reduction in the new launches.

In view of this adverse industry expectations, "the government could announce a fiscal stimulus package for the industry and implement it on fast track mode, given that the sudden imposition of the lockdown has significantly impacted industry operations and the uncertainty of a recovery threatens substantial loss of livelihoods going forward," said Chandrajit Banerjee, Director General, CII.