Management Perspectives

More than three years have passed since the outbreak of the COVID pandemic that started in Wuhan city. The subsequent lockdowns that followed had a tremendous impact on the world economy. Even USA, financially, the strongest country in the world, could not escape the adverse effects of COVID. As per the data provided by the US Bureau of Labor Statistics, the unemployment rate in the country rose to a record high of 14.7 per cent with the number of jobless people standing at 23.1 million in April, 2020. In this respect, the India’s scenario was more alarming. The records published by the Centre for Monitoring Indian Economy (CMIE) show that the unemployment rate in India which was less than 7 per cent in the mid-March, 2020 went up to 27.11 per cent the first week of May, 2020. At that time, it was about 29 per in the urban areas and 26 per cent in the rural areas.

During the phases of complete lockdown, about 14 crore people became jobless. A study which was carried out in April, 2020 by the Federation of Indian Chamber of Commerce and Industry (FICCI) in collaboration with Dhruva Advisors, a renowned tax and regulatory firm in India, taking 380 companies across the sectors revealed that 72 per cent of these companies were placed in the category of very high level of risk during the COVID-19 period. This study also witnessed that 61 per cent of the sample companies postponed their expansion programme for a period of six to 12 months and 33 per cent of the companies under study postponed their expansion programme for a period of one year. So, 94 per cent, ie, most of the sample companies postponed their expansion programme due to the COVID-19 outbreak and subsequent lockdown. Another noticeable outcome of the study was that 60 per cent of the companies under study put off their fundraising plan for a period of 6 to 12 months while a similar plan was held over by 25 per cent of the sample companies for a period of more than 12 months. Thus, 85 per cent, ie, the majority of the companies postponed their fund-raising plan. These outcomes, as derived from the study, prove that India’s business sector faced immense threat emanated from the COVID-19 outbreak.

Another mentionable information regarding the status of the India’s business sector during the COVID-19 pandemic is that about 6600 firms belonging to the Indian corporate sector were legally connected with companies in countries with a large number of confirmed COVID-19 cases. In this context, the example of China can be cited. China has established itself as the world’s largest exporter since 2009. It accounts for about 15 per cent of the world’s total exports. Similarly, China is the second largest importer (after USA) in the world during the last 11 years. It accounts for about 11 per cent of the world’s total imports. India has a strong linkage with China in respect of international trade. China contributes more than 15 per cent of the India’s total imports. The COVID-2019 was first found in China on 17th November, 2019. It showed huge negative impact on Chinese economy leading to disruption in the international trade. As a consequence, the India’s business sector was also severely affected.

There is a strong association between largescale businesses (LSBs) and micro, small, and medium enterprises (MSMEs). The LSBs largely depend on the supplies made by the MSMEs while the MSMEs cannot flourish without the demand of the LSBs. So, they are interrelated and interdependent. It is also notable that the MSMEs, generally, contribute more than 30 per cent of the India’s GDP and follow a growth rate of at least 10 per cent per annum. Another noticeable point in favour of the India’s MSMEs is that about 45 per cent of the India’s total exports are contributed by the MSMEs. So, the MSMEs have great contribution to the well-being of the India’s business world. Due to the COVID-19 pandemic, not only LSBs but also MSMEs were in acute crisis. According to the report of a survey which was jointly conducted by non-banking financial firm, Magma Fincorp and business school, Bhavan’s SPJIMR on the basis of 14,444 MSMEs in May, 2020, nearly 50 per cent of the sample MSMEs witnessed a 20 to 50 per cent reduction in their earnings and smaller-sized firms’ earnings were more affected due to the COVID-19 pandemic.

Post-pandemic scenario

Some positive changes have taken place in the post-pandemic period. In this context, at least two points can be mentioned. First, if the report published by the National Statistical Office (NSO) under the Ministry of Statistics and Programme Implementation, Government of India is considered, it is observed that the India’s Gross Domestic Product (GDP) growth rate which was (-) 6.6 per cent in 2020-21 (ie, in the pandemic period) went up to 8.7 per cent in 2021-22 (ie, in the post-pandemic period). It is definitely a positive sign for the India’s economy. Secondly, as per the CMIE reports, the unemployment rate which exceeded 27 per cent (May, 2020) went down significantly to 8.28 per cent in August, 2022. However, this information may not reflect the true status of the India’s business environment during the post-pandemic period. In this context, two points can be highlighted. First, as per the Reserve Bank of India (RBI) reports, the government debt to GDP ratio in India has been increasing with the passage of time during the post-pandemic period. This ratio which was 73.95 per cent in 2019-20 (ie, in the pre-pandemic period) has stepped up to 84 per cent in 2021-22 (ie, in the post-pandemic period). Moreover, as per a World Bank projection, it is expected that the government debt to GDP ratio in India would be 89 per cent in 2022-23. It is obviously considered as a negative sign for the India’s economy. Secondly, if the NSO report for the year 2021-22 is considered, it is found that 53.89 per cent of the India’s Gross Value Added (GVA) was contributed by the service sector, 25.92 per cent by the manufacturing sector, and the remaining 20.19 per cent by the agriculture and allied sector.

According to the principles followed in Economics, if the share of manufacturing sector’s contribution to GVA does not grow sufficiently, overall economic development cannot be made possible in developing countries like India. Moreover, out of the four basic components of GDP, such as personal consumption expenditure (PCE), business investment, government spending and net export, the first one i.e. PCE is the biggest component of GDP. The PCE which generally contributes more than 60 per cent of the India’s GDP has reduced notably in the postpandemic period. The ratio of PCE to GDP in India was 60.5 per cent in 2019-20, and it went down to 58.6 per cent in 2020-21 and 57.5 per cent in 2021-22. So, the PCE has failed to contribute adequately to improve the country’s GDP during the post-pandemic era.

It is a well-accepted principle in Economics that if the PCE goes down, the real sector’s (which includes manufacturing sector) growth rate decreases. As the ratio of PCE to GDP in India declined during the post-pandemic period, the same trend in the growth rate of the India’s manufacturing sector has been noticed. There are numerous reasons for decline of the ratio of PCE to GDP in India. Two of the vital ones can be hinted at. First, the public distribution system (PDS) in India in which about 80 crore people (58 per cent of the total population) are the beneficiaries does not run properly. So, people do not get adequate amount of food grains and other essential commodities. Thus, people are not in a position to spend some money for acquisition of non-essential commodities. As a result, the PCE has not gone up. The main cause of inefficient running of the PDS in India is corruption. The fund allocated by the central government for providing food subsidy in the financial year 2020-21 was R115,570 crore (ie, about 3.8 per cent of the total estimated expenditure as per the budget estimates relating to the fiscal year 2020-21) which has stepped up to R294,000 in 2021-22 (which is about 8.4 per cent of the total estimated expenditure as per the budget estimates relating to the fiscal year 2021-22). So, huge amount of fund is involved in the PDS in India which induces the presence of high level of corruption in the system. Secondly, the confidence level of people in India has not improved significantly in the post-pandemic period. As per the RBI survey reports, the future expectations index (FEI) in India measuring consumers’ perception of the economy was 97.9 in May, 2020. In fact, a score of the FEI below 100 indicates consumers’ pessimism. So, the people were pessimist in the pandemic period Though several positive changes have taken place in the post-pandemic period, the confidence level of people in India has not improved considerably. During the post-pandemic period, the FEI values in India were 103.3 (January,2022) 115.2 (March,2022), 112.9 ( May,2022) and 113.3 (July,2022) whereas in the pre-pandemic period, the FEI in India was 133.4 (March,2019). Thus, as compared to the pre-pandemic period the confidence level of people has declined in the post-pandemic era. So, people intend to save a substantial portion of their earnings for future consumption resulting in the reduction of PCE to GDP in India.

Concluding remarks

One encouraging phenomenon observed in India in the post-pandemic period is mentioned here. As per the World Investment Reports published by the United Nations Conference on Trade & Development, a clear upward trend in the foreign direct investment (FDI) inflows has been noticed in the post-pandemic period. The FDI in India have stepped up by about 10 per cent and 23 per cent in 2020-21 and 2021-22, respectively, as compared to the previous years’ figures. Moreover, the FDI equity inflows in the Indian manufacturing sector have also gone up by 76 per cent in 2021-22. The COVID-19 first broke out in China in November, 2019 which had a great negative impact on Chinese economy. As a result, China lost its dominance, at least to some extent, over international trade.

India has been able to exploit the situation a bit by initiating major reform measures associated with FDI policy in some sectors like pharmaceuticals, automobiles, food processing, construction, defence, civil aviation, etc. Apart from this, India enjoys certain inherent benefits, such as availability of cheap labour force, abundance of skilled IT personnel, higher political stability, etc. This is also reflected in the World Bank’s Ease of Doing Business Ranking (EDBR). As per the EDBR, the India’s rank was 142 in 2014 out of 190 countries in the world which reduced to 63 in 2019. Even in 2022 India has been able to maintain status quo in terms of EDBR. In fact, India has retrieved its status in the post-pandemic period in respect of providing favourable business environment despite towering menace stemmed from the COVID-19 pandemic.