Impact of Coronavirus on Indian Businesses

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Impact of Coronavirus on Indian Businesses

The World Health Organisation (WHO) on March 11, 2020 declared COVID-19 as a ‘Pandemic’. This comes at a time when global economic headwinds were already high and threatens to disrupt the global economy with fears of recession looming in many countries. Besides the impact on human lives and global supply chain, the pandemic is a severe demand shock which has offset the green shoots of recovery of the Indian economy that were visible towards the end of 2019 and early 2020. The pandemic has also resulted in acute market volatility across the globe, reflecting the unprecedented uncertainty of the situation. A fall in the optimism levels amidst heightened uncertainty has led to a ‘double whammy’ – closure of businesses leading to global supply chain disruptions, and a steep fall in the consumption. In view of this, Dun & Bradstreet has revised its Gross Domestic Product (GDP) estimates for India downwards by 0.2 percentage points for FY20 to 4.8 % and by 0.5% for FY21 to 6%. However, the extent of actual impact would depend on the severity and duration of the outbreak, which is still unknown.

Implications for Indian companies

Indian companies face strong headwinds both from global and domestic factors. The three major channels of impact are legal linkages, supply chain and macroeconomic factors.

Dun & Bradstreet data shows that at least 6,606 Indian entities have legal linkages with companies in countries with a large number of confirmed COVID-19 cases. Linkage is the relationship between different businesses within a corporate family, when one company has financial or legal responsibility for another company. Of these 6,606 Indian entities, 35% are in the manufacturing sector, 62% are in the services sector and the remaining 3% are in the mining & construction sector. Disaggregating the data reveals that at least 152 Indian entities have legal linkages with entities in two or more countries severely impacted by COVID-19. A slowdown in business activity in the foreign markets implies a negative impact on the topline of these companies. However, the extent of impact would depend on the nature of linkage. For instance, a slowdown in the business activity of a foreign subsidiary would have potentially more far reaching impacts than a slowdown in the business activity of a foreign affiliate. The implications of the outbreak were less when cases were reported only within China a few weeks ago because just 220 Indian entities have legal linkages in China. However, the outbreak has now turned into a pandemic and cases are reported in over 163 countries. Over 2,141 Indian entities have legal linkages in the USA alone. As the outbreak intensifies, the risks to Indian companies will increase significantly.

Cumulative no. of confirmed COVID-19 cases

Source: Johns Hopkins CSSE, WHO, CDC, ECDC, NHC and DXY

These companies need to ensure they have a Business Continuity Plan (BCP) and stress test their contingency strategies. These markets can become the petri dish for experimentation with remote working, which can later be applied to operations in India, should there arise a similar situation. Some of the questions that companies need to ask themselves include:

  • How would our business be impacted if one of the subsidiaries or the headquarters is closed?
  • How would our business be impacted if the absenteeism rate, for instance, reaches 50%?
  • How would our business be impacted if all countries closed their borders?

From a trade perspective, the implications for Indian companies are widespread. The countries most affected by COVID-19 together account for almost 50% of India’s exports and 50% of India’s imports. Companies with suppliers in these regions will face supply chain disruptions and exporters to these regions may face a pile up of inventory and/ or a decline in their order books.

Country No. of Indian entities which have legal linkages % share in India’s Imports % share in India’s Exports
China            220 18% 10%
Italy            200 1% 2%
Iran                2 3% 1%
Spain            105 0% 1%
Germany            832 3% 3%
USA        2,141 7% 16%
France            342 1% 2%
South Korea            185 3% 1%
Switzerland            249 4% 0%
United Kingdom            710 1% 3%
Netherlands            582 1% 3%
Austria              59 0% 0%
Belgium              62 2% 2%
Norway              42 0% 0%
Sweden              91 0% 0%
Denmark              62 0% 0%
Japan            603 2% 1%
Malaysia              35 2% 2%
Canada              84 1% 1%
Total        6,606 50% 49%

Note: Trade Data for China includes Hong Kong and Taiwan.
Source: Dun & Bradstreet, Ministry of Commerce & Industry


While the outbreak is forcing several business closures around the world, there are positive signs in China. Dun & Bradstreet’s Business Intelligence Reports show that companies across China are resuming operations. More than three-fifths of companies surveyed have resumed operations. This figure is as high as 96% in certain parts of China. However, these companies may require more time to reach their previous capacity utilisation levels.

Comparison of companies resuming operations in different regions

Note: Data as on March 10, 2020.
Source: Dun & Bradstreet

The impact on Indian companies with suppliers and buyers in these markets will vary across sectors depending on the respective import dependency, inventory level, capacity for import substitution, search and information costs in alternate markets etc. On the domestic front, the government has announced a nationwide lockdown till April 14, 2020. The lockdown is expected to disproportionately impact some sectors more than others. Subsequently, the government announced a Rs 1.7 tn relief package under Pradhan Mantri Garib Kalyan Yojana. The relief package will provide direct cash transfers for a large number of affected people including senior citizens, widows, farmers and daily wage laborers. The government also announced a series of relief measures related to statutory and regulatory compliance matters. These measures provide respite to companies and helps them avoid the cost and consequences of non-compliance. The below sector-wise analysis relates to short-term implications and requires periodical monitoring and updates.

Sectoral Impact Analysis


Aviation: The impact on the aviation sector has been severe due to the travel bans imposed by several countries and low domestic passenger traffic driven by heightened risk averseness. Some airlines reported a 20% decrease in the domestic booking volumes in the month of February 2020. Between Feb 01, 2020 and Mar 06, 2020, four domestic airlines cancelled 93 flights. While there was a slight respite due to the fall in international crude oil price, it was outweighed by the impact of low traffic. The government has announced a nationwide lockdown till April 14, 2020. This has increased the severity of the impact on the aviation sector. Given the current situation and uncertainty about the containment, forward bookings for the months of April and May are also expected to be affected. The ensuing cash flow disruption could possibly lead to breach of debt covenants if the outbreak escalates and results in a prolonged near-zero revenue situation.

Shipping: Restrictions on port calls, muted consumer demand and industrial activity is having a bearing on the global shipping activity. Container terminals at the major ports in India have already reported a few blank sailings or cancellation of port calls. This could intensify in the coming weeks depending upon the level of outbreak in India’s major trading partner countries. Apart from low volumes, terminals could also be affected by container imbalance.   

Others: All train services, including sub-urban rail and metro rail, are suspended till April 14, 2020. Inter-state and Inter-district passenger transport has also been suspended. A slowdown in the cargo and passenger traffic across all modes of transport will not only affect transport operators and terminal owners but also a wide array of ancillary transport services such as custom house agents, freight forwarders, container freight stations, warehousing, booking agents, etc.


Suspension of existing visas and restriction of air traffic, both globally and domestically, is expected to severely impact the tourism sector and will have ripple effects on the hospitality sector. While the percentage share of foreign tourist arrivals witnesses a dip usually in the months of March and April, together these two months still account for around one-sixth of India’s foreign tourist arrivals in a year. The travel bans in place translate to a foregone revenue of around US$ 5 bn for the industry from foreign tourists alone. The magnitude of the impact would be much larger when foregone revenue from domestic tourists is also accounted for.


The overall impact on retail sector is expected to be high. The central government has announced a nationwide lockdown till April 14, 2020. The level of discretionary spending is expected to fall steeply and remain low in the coming weeks. Hence even if stores reopen, a decline in store footfall and net sales is expected. However, not all segments of the retail sector will face similar level of revenue losses. While segments such as textile, footwear, fashion accessories, furniture and other household appliances will have revenue losses, segments that cater to essential services such as food and other fast-moving consumer goods will likely face a surge in sales driven by panic buying and hoarding behavior.


Poultry farming is one of the worst hit sectors due to the outbreak of COVID-19. Prices of chicken and eggs have dropped by 70%-80%. Poultry farmers are now facing losses at the farm gate up to the tune of Rs 50-60 per kg. The average bird placement in broiler segment is around 70 mn birds per week with an average live weight of 2 kgs. This translates to a weekly loss of around Rs 7-8 bn from the sale of chicken alone. This figure would be much larger when the losses from eggs are also accounted for. On a micro level, given that the average farm size in India is 8,000 birds with a 40-day production cycle, a typical poultry farmer would lose around Rs 1 mn. Losses of this magnitude with no signs of price recovery in the near future are expected to drive many players out of business.

Media and Entertainment

The impact of COVID-19 outbreak on the media and entertainment sector is expected to be severe. With near-zero revenues and considerable fixed overheads such as rental, maintenance, etc., theatres are expected to report significant losses. Various research estimates that losses for the media and entertainment sector can surge up to Rs 85 bn in one month. While the Indian Premier League (IPL) has been postponed, a deterioration in the current scenario might lead to cancellation of the IPL, a move that will have repercussions on multiple stakeholders. The knock-on effects will be felt on media houses that have scheduled coverage, advertising arrangements, corporate sponsorships and promotional events. The impact of the shock will stretch longer for this sector as some demand will be permanently lost and a rebound may not be immediate. However, a surge in demand is expected in certain pockets of this sector such as Over-the-Top platforms and online gaming.

Micro, Small and Medium Enterprises (MSMEs)

The impact of the COVID-19 outbreak on the MSME sector is expected to be high as the prospects of the already stressed MSME sector, with limited ability to cope up with a deep slowdown, have worsened further. This is the third biggest shock. The initial two shocks were demonetisation and implementation of Goods and Services Tax (GST). Dun & Bradstreet data shows that there are over 27 million commercially visible entities in India of which over 99% are Micro, Small and Medium Enterprises (MSMEs). These MSMEs contribute 35% to GDP and employ 25% of non-farm workforce. Hence, a prolonged outbreak could cripple the majority of the MSMEs and have an eventual drag on India’s growth story.

The nationwide lockdown for three weeks poses a challenge for companies that do not have a Business Continuity Plan (BCP) in place and is expected to have varying impact on the MSME sector. MSMEs engaged in certain services such as retail trade, restaurant services and transport services will be the most impacted as closure of business leads to lost demand and forgone revenue. MSMEs that are engaged in many other services are vulnerable as they do not have the requisite tools and infrastructure to facilitate remote working. In a survey conducted by Dun & Bradstreet, it was observed that only 32% of the surveyed MSMEs had a ‘work from anywhere’ policy for their employees.

Delay in payments have long been a primary problem for the MSMEs. Dun & Bradstreet data shows that only 53% of large companies in India pay their suppliers on time. A slowdown in demand due to the outbreak of COVID-19 may force large companies to scale down their production. The ensuing cashflow disruptions will lead to delayed payments to MSMEs, triggering an avalanche of credit defaults and permanent business closures of highly leveraged MSMEs. This has the potential to render many people jobless and the remaining workforce may suffer from some sort of pay revision. MSMEs’ access to credit is expected to become more challenging as the risk appetite of creditors will likely decline. Low order books also rule out the possibility of securing working capital financing. Hence, MSME promoters may need to infuse additional capital to tide over the current situation.

Gems & Jewellery

The impact of COVID-19 outbreak on the gems & jewellery sector is expected to be severe. The sector has been in strain since the start of the outbreak. India is the largest centre in the world for diamond cutting and polishing. Hong Kong is India’s biggest export market for diamonds with a share of 38% and China Mainland accounts for another 1%. With the exponential increase in the number of cases globally, revival of the sector does not appear imminent in the near future. Given that the gems & jewellery contribute to 12% of India’s merchandise exports, the impact of the slowdown in global demand is expected to pull down India’s overall exports very steeply. Even domestic demand remains tepid and will likely be so in the months to come.

Electronic goods

The impact of COVID-19 outbreak on the electronic goods sector is expected to be high. High level of dependency on imports makes the sector highly vulnerable to foreign exchange risk coupled with fear of supply constraint. Of the total demand for electronics in India, about 50-60% of the products and 70-80% of the components are imported.

Share of consumer electronics imports from China stood at 43.2% – making it the biggest market for Indian imports. While the share of telecom instruments imports from Vietnam increased last year with a consequential decrease in imports from Mainland China, the latter still accounts for over 40% of India’s imports. Hong Kong accounts for another 20%. Given the high concentration of imports, from Mainland China and Hong Kong, the overall impact on this sector is expected to be comparatively strong as companies will take some time to anchor their supply chain.  The COVID-19 outbreak in China also has a potential to adversely impact the mobile phone industry. Due to supply chain disruptions, there exists a significant uncertainty around the impact on manufacturing handsets. Supply disruptions have already led to shortage of components of electronic goods leading to increases in input prices for manufacturers amidst an already increasing price pressure due to the depreciating rupee.

Domestically, the overall electronics hardware industry is fragmented with Delhi/NCR, Mumbai/Pune, Bangalore, Hyderabad and Chennai as key hubs for electronic hardware manufacturing in India. Given the nationwide lockdown, manufacturers will stop operations or operate at low capacity Hence, domestic production is expected to be severely disrupted till April 14, 2020. While the consumer electronics segment has remained fairly consolidated in nature because of the high investment requirement and continuous innovation in the technology, the overall electronic industry is fragmented and disorganised in nature. This implies that the MSMEs operating in these segments are expected to be strongly impacted. The slowdown in demand in both the domestic and global market is also expected to dampen the sales of expensive consumer electronic goods.


The automotive sector has been in trouble since July 2018. Sales of passenger and commercial vehicles were hit hard by subdued demand and weak economic activity. On the other hand, subdued consumer sentiments due to economic slowdown, increase in vehicle prices, liquidity crunch in the Non-Banking Financial Company (NBFC) sector, slowdown in rural demand and higher vehicle inventory with dealers have impacted the domestic demand for two and three wheelers. To address the slowdown in the auto sector, the government announced various measures including lifting the ban on purchase of vehicles by government departments and allowing additional 15% depreciation on vehicles acquired in FY19 till March 2020. Also, to reduce pressure on manufacturers to switch over to BS-VI emission norms from BS-IV and clear their inventory of BS-IV vehicles, the government made BS-IV vehicles purchased up to March 2020 operational for the entire period of registration. While these measures were expected to yield some signs of recovery in ailing auto sector, the outbreak of COVID-19 has made that unlikely.

A few weeks ago, the intensity of COVID-19 was high only in China, which accounts for 27% of India’s auto component imports. But since then the outbreak has turned into a pandemic, spreading over 163 countries some of which have direct linkages to Indian auto sector. Hence the prospects of finding suppliers in alternative markets (other than China) has turned bleak. China (27%), South Korea (19%), Germany (10%), Japan (10%), Thailand (7%), USA (7%), Singapore (4%) and Italy (2%) account for more than 80% of auto ancillary imports.  All these countries are severely affected by COVID-19. A halt in production in these countries will increase the risk of supply chain disruptions for Indian automotive sector. Shut down of manufacturing units increases the risk of shortage of auto components. Furthermore, any shortage of critical components due to lockdown in other countries such as the UK, Netherlands, Austria, Belgium and Sweden could also result in the halt of domestic manufacturing. Although many Chinese suppliers have resumed production, they aren’t operating at their previous capacity levels. Normally, auto companies maintain a one-month or two-month inventory, however if the supply chain remains disrupted for next two months, the Indian auto industry may face significant revenue loss. Additionally, the supply side risks can eat into the margins of automakers who are already under pressure to switch over to BS-VI emission norms from BS-IV from April 1, 2020. On the other hand, consumers decision to postpone their purchase of vehicles and higher prices of end products due to the spurt in input costs will pull down the demand significantly in the coming fiscal year.

Many manufacturing units have already cut down on their production levels. Given that the automotive sector contributes around 6%-7% to India’s GDP and more than 40% to the manufacturing value added, even a temporary halt in production will have large repercussions for the economy.

Drugs and Pharmaceuticals

The impact of COVID-19 outbreak on the drugs and pharmaceuticals sector is expected to be moderate. The sector contributes to 1.2% of India’s gross value added and 7% of manufacturing value added. India is the world’s largest supplier of cost-effective generic drugs, and accounts for nearly one-fifth of the global trade in generic drugs. India also accounts for nearly 60% of the global vaccine production.

Raw material dependency on China is creating uncertainty regarding normalisation of supply chains. Indian pharmaceutical industry is heavily dependent on Chinese imports for its input / active pharmaceutical ingredients (API) requirements. According to the Trade Promotion Council of India, India imports about 85% of its total requirement of APIs from China. While many Chinese companies have resumed operations, the capacity utilisation rate is still very low.  Unless production is ramped up in China, risks to Indian manufacturers will remain elevated. As per various reports, the median inventory is about 180 days for the industry and for some products there is stock of 30-40 days to three months. Raw material cost for various medicines including antibiotics have increased as it is imported from China. The industry is highly regulated hence it takes time to obtain license to import controlled drugs from alternate markets. Moreover, of the top 10 countries that account for more than 80% of India’s pharmaceutical imports, seven countries – China, US, Germany, Italy France, Netherlands, UK – have been severely impacted by COVID-19, putting at risk domestic supply from these countries. The three major markets from where India imports bulk drugs and drug intermediaries are China (68%), US (4%) and Italy (3%). The largest markets from where India imports drug formulations and biologicals are Switzerland (15%), US (13.5%), Belgium (12.5%), Germany (9.9%) and China (7.4%). As these countries announce lockdown and restrictions on commercial activities with no clarity of when the situation would normalize, the sector would continue to remain impacted.

Since India is a major exporter of pharmaceutical products, the restrictions imposed by the government on exports of 26 pharmaceutical ingredients and the medicines and vitamins made from them to prevent shortages domestically have led to concerns of shortage of essential medicines in countries that India exports to. India is the tenth largest exporter in the world for pharmaceutical products. Nearly 49 – 50% of this export goes into regulated markets including the US, UK and Japan. One in three generic pills consumed in the US and nearly 25% of medicines used in the UK are manufactured by Indian pharmaceutical Companies. Since drugs and pharmaceutical products are essential commodities, its manufacturing is not likely to be clamped down during the nationwide lockdown period (till April 14, 2020). However, production is likely to be slightly impacted in the initial few days in some states (Maharashtra and Kerala) owing to imposition of Section 144. Section 144 prohibits assembly of five or more people. The government is taking measures to ensure supply in the domestic market by curbing exports and placing caps on the prices of hand sanitizers and masks.  Imports will get costlier and since 20% of the market is under price control, profit margins will be impacted. Panic buying and hoarding behavior of retailers and consumers are creating shortages of certain medicines. Suggestions are being made to consider increasing the capacity utilisation level of existing pharmaceutical manufacturing plants.


The impact of COVID-19 outbreak on the textile sector is expected to be moderate in the coming weeks. However, if the outbreak remains prolonged then the impact is expected to be high. India is one of the world’s largest producers of textiles and garments. In terms of global ranking, India is ranked 2nd in textile export with 6% share and 5th in apparel export with 4% share. In terms of capacity, the industry has the second largest vertically integrated textiles production base in the world after China.

A moderation in the global demand for readymade garments is expected over the next few weeks. Exports to major markets such as the USA and European countries is also expected to decline. On the domestic front, slowdown in consumption demand and subdued activity in the retail sector will have spillover effects on the textile sector. A decline in the order books of manufacturers is expected as cities go into a lockdown mode. The decline in discretionary spending amidst the lockdown announced in all the states in India will lead to a complete stoppage of production and pile up of inventory. However, essential commodities such as masks, cotton rolls and gazes and other related products for medical and hospital usage is likely to continue, impeded by restrictions in people movement and social distancing.  Readymade garment manufacturers may also face intense competition from Vietnam and Bangladesh.

China is a major supplier of raw materials to India. China leads the market share in terms of import of cotton yarn with a share of 35% followed by Vietnam (24.6%), Indonesia (10%), Sri Lanka (6%) and Turkey (4.4%). China is also the leading supplier of purified terephthalic acid (PTA), the key raw material used to produce polyester fiber and yarn, and relatively inexpensive polyester fiber and yarn, the inputs for making synthetic cloth to India. The shutdown in production in China will also impact supply of PTA to India. China is a major supplier of low-cost synthetic fabric to India, however, lower imports of synthetic fabric from China is not likely to help domestic manufacturers to increase their market share as China is also a major supplier of the raw material i.e. PTA.

China is the largest buyer of Indian cotton yarn (share of 32%). Cotton yarn exporters remain impacted because of disruptions in China. India’s penetration in other major markets such Bangladesh (19%), Pakistan (5%), Egypt (4.7%) and South Korea (3.5%) is low and these markets will not be able to serve the deficit in demand from China for the Indian exporters. India is the largest producer, and the second largest exporter of cotton in the world. India is also the leading consumer of cotton. At 50% of world production, India is the largest producer of raw jute and jute goods in the world. India is also the second largest producer of silk in the world. The Indian exporters are likely to be impacted given the slowdown in demand in key markets. Domestic PTA manufacturers are likely to hike their prices given the shortage in supply from China. The subsequent rise in polyester fiber and yarn prices will push up input costs for fabric manufacturers and affect their profit margins.


The impact of COVID-19 outbreak on the metal sector is expected to be moderate in the coming weeks. The domestic industry was already facing headwinds to growth from a slowdown in economic activity, weak demand and the US-China trade war. The outbreak of COVID-19 has furthered the trouble in the sector. Severely affected COVID-19 countries such as China, Japan, USA and Malaysia account for over 50% of India’s metal & metal products imports. This increases the risk of supply chain disruptions. Steel is a major metal item in India’s metal import (63% share) as well as export (68% share). A decline in the steel output in China, which is India’s largest supplier of finished steel and steel products, has roiled the domestic market. Major domestic companies are now looking for suppliers in alternative markets such as Turkey and Brazil. On the other hand, Indian steel producers export only around 8% of their total production. Hence, the impact of a slowdown in global demand on the domestic sector will be limited. But since the metal industry has strong forward linkages to many important sectors such as automotive, construction, infrastructure and manufacturing, a slowdown in business activity in these sectors will inevitably drive down the derived demand for metals.

Sahil Saini

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