Impact of Second Wave & Scattered Lockdowns on the SME Segment
Article originally published in THE SME INDIA.
India is undoubtedly facing and fighting the second wave of COVID-19. In the month of April 2021, the increase in the COVID-19 cases has seen an unprecedented upswing on all the studied criteria, Positivity Rate, Number of Cases and Number of deaths. This is worrisome for everyone in the country, i.e., the Public Health system, informal sector employees, the public at large and the Governments both at the Centre and States.
The most impacted are the middle class and the SMEs. These are the most vulnerable group. These groups are still trying to recover from the shock of 2020 lockdown. A mere thought of a national lockdown sends chills in our nervous system. To substantiate this, a Pew Research states that in March 2021 that in India, 32 million people were pushed out of Middle Income Group and the number of Poor increased to 134 Million from 59 million, more than double.
As states have started imposing lockdown-like restrictions to check the speed of spread of the second wave of the coronavirus pandemic or to say break the chain, the slowdown in business is inevitable. A decline in incomes and spending, with consumer-facing sectors and small and medium-sized enterprises (SMEs), is a foregone conclusion, however, the degree of impact may be a subject of discussion.
The worst-hit sectors are likely to be Hospitality including hotels, aviation, tour and travels, multiplexes. Other sectors which are likely to be impacted big are autos, financials and Consumer retail. The readymade garments would one more sector taking a bid hit. This would also impact the large scale workers engaged in the smaller units to which the production is outsourced. The impact may be comparable to that of 2020 in terms of consumer response, but the scale will be significantly less acute.
The current lockdown is less harsh than what we had experienced in 2020 and also, we are slightly better prepared to deal with the spread of covid from an economic perspective. Industry sectors that are directly impacted like Hospitality and retail (Electronics and apparels to name a few) would take an immediate hit from a demand perspective. Smaller players are likely to take bigger hits. In electronics retail, the production is also likely to be regulated towards lower numbers as the demand is low.
It is being forecasted that discretionary items, once again will come low in the priority list. Consumers are unlikely to replace their one-two-year-old air conditioner units and cookware this year, several sectors that had benefited from pent-up demand in 2020 won’t have the same demand support.
The recent market correction prices are also seen as a fallout from the second wave. Indian markets are already down nearly 8% from the record highs reached February 2021 after the Union Budget.
Major key learning from last year lockdown has been the importance of home deliveries by nearby shops and e-commerce platforms for ensuring that people do not go to the markets. It is important to understand and empathize that even as the lockdowns are in place, a large part of the population continues to work from home, dependent on the supplies of electronics, chargers, etc. Children studying at home require stationery items, however, these products don’t constitute as ‘Essential’ as per Official definitions, they are nevertheless ‘essential’ for a person to sustain their livelihood amidst lockdowns. To reduce the impact of these lockdowns several SMEs shifted to online marketplaces last year owing to a lack of demand in retail markets.
SMEs continue to struggle to adapt their business operations to the current situation, which is highly uncertain and volatile, face more operational skills constraints. SMEs are less likely to have Managerial capability to comply with unforeseen circumstances faced by the business currently. SMEs recovering from the last year lockdown effects are not likely to innovate because of the uncertainties surrounding the second wave and a likely third wave. The main reason can easily be attributed to the level of recovery from last year lockdown and the imposition of lockdowns in different states to prevent the spread of the second COVID -19 wave in India.
These vulnerabilities of SMEs have led to a steep decline in the top line from the outset of the crisis at a faster rate than they were able to cut operating costs to prevent the falling bottom line, threatening a potential liquidity crisis among SMEs on a massive scale.
We remain hopeful of a faster recovery when the second wave subsides and is brought under considerable control. We are a Resilient Society.