Name: Madan B M

USN: 4JN18MBA16
Sub: Corporate Valuation
Title of the Assignment: “Financial Implication of Lockdown on Business:

Introduction
India is now facing its greatest crisis since its independence. There is a 21-day lockdown to
enforce self-distancing to prevent the spread of COVID-19 and flatten its growth curve. It is
natural that in the process, the economy is on complete bed rest. The exercise is to find out the
cost of this lockdown.
Take a look at the components of the Indian Economy-Gross Value Added (GVA) at Basic Price
2011-12, at current prices. To clarify, the relationship of GVA with Gross Domestic
Product (GDP), GVA is defined as GDP + Subsidies on products-Taxes, and GVA generally is a
better indicator for analytics.
Sector GVA(Rupees in lakh cr) % to Total
Agriculture, forest and fishing 27.76 16
Industry 37.08 22
Mining and quarrying 4.10 3
Manufacturing 28.18 16
Electricity, gas, water supply and 4.80 3
other utilities
Service 107.15 62
Construction 13.76 8
Trade, hotel, transport, 31.51 18
communication and service relating to
broadcasting
Financial, real estate and professional 36.66 21
services
Public, administration, defence and 25.22 15
other service
Total 171.99 100
(Source: Reserve Bank of India, Handbook of statistics on the Indian Economy 2018-2019)
 I have excluded agriculture and public administration in services from computation in
disruptions in the above table. It is assumed that a few functional sub-sectors contained in the
table above will have a nullifying effect on the disruptions in excluded sectors like agriculture,
public administration, etc which cannot be quantified accurately.
Let us discuss one by one lack down implification on above sector on Indian economy.

1.Agriculture, allied sectors

Government agri-research body ICAR is assessing the impact of Covid-19 lockdown on

The Indian Council of Agricultural Research (ICAR) is the apex body for coordinating, guiding,
and managing research and education in agriculture in the entire country under the aegis of
Ministry of Agriculture and Farmers Welfare.

The government has imposed a 21-day countrywide lockdown to stop the spread of the
coronavirus pandemic. There are more than 3,000 confirmed cases of coronavirus in the country
at present.

Meanwhile, the official said ICAR had offered all its guest houses located in different states for
quarantine use.

ICAR also said that its four institutes -- Bhopal-based National Institute of High Security Animal
Diseases (NIHSAD), Bengaluru-based National Institute of Veterinary Epidemiology and
Disease Informatics (NIVEDI), Izatnagar-based Indian Veterinary Research Institute and Hisar-
based National Research Centre on Equines (NRCE) -- have required facility to do COVID-19
tests.

ICAR further said its institutes are providing food and ensuring hygiene in nearby labourer
colonies. It is also contributing one-day salary of its staff, amounting ₹6.06 crore, to PM-
CARES fund to combat COVID-19.

2. Industry

The world's biggest lockdown that shut a majority of the factories and businesses, suspended
flights, stopped trains and restricted movement of vehicles and people, may have cost the Indian
 economy Rs 7-8 lakh crore during the 21-day period, analysts and industry bodies said.
With the intent to contain the spread of COVID-19, Prime Minister Narendra Modi with effect
from March 25 announced a nationwide complete lockdown that brought as much as 70 per cent
of economic activity, investment, exports and discretionary consumption to a standstill. Only
essential goods and services such as agriculture, mining, utility services, some financial and IT
services and public services were allowed to operate.

Stating that the pandemic came at the most inopportune time for India whose economy was
showing signs of recovery after bold fiscal/monetary measures, Centrum Institutional Research
said the country again stares at the possibility of low single-digit growth for FY2021 (April 2020
to March 2021).

"Nationwide complete lockdown is likely to shave off at least Rs 7-8 trillion," it said.
Acuite Ratings & Research Ltd earlier this month estimated that the lockdown will cost the
Indian economy almost USD 4.64 billion (over Rs 35,000 crore) every day and the entire 21-day
lockdown will result in a GDP loss of almost USD 98 billion (about Rs 7.5 lakh crore).

3. Mining and Quarrying

The exemption granted to sectors such as mining and steel may have more to do with sustaining
large companies which are already facing losses.

India is under an emergency lockdown. One big question that will be asked for some time to
come is if this extreme measure could have been prevented. What we do know is that its
implementation has resulted in chaos and has threatened the lives of a large number of poor
workers. While the total lack of safety and survival measures for urban daily wage workers at
this time has been on full display, news about how this lockdown affects rural workers is
trickling in.

The national lockdown was announced on March 24. It invoked Section 10 (2) (i) of The
Disaster Management Act, 2005 which gives powers to the National Executive Committee
to “evaluate the preparedness at all governmental levels for the purpose of responding to any
 threatening disaster situation or disaster and give directions, where necessary, for enhancing
such preparedness…”.

Under this law, the central government issued “Guidelines on the measures to be taken by
Ministries/ Departments of Government of India, State/Union Territory Governments and
State/ Union Territory Authorities for containment of COVID-19 Epidemic in the Country.”
This document stated that industrial establishments will remain closed, except for
manufacturing of essential commodities and specific production units with prior permissions.
On the next day, an addendum was issued to exclude certain industries and “coal and mineral
production, transportation, supply of explosives and activities incidental to mining operations.”

4.Manufacturing Sector

The domestic manufacturing industry is preparing to resume operations when the 21-day

Sajjan Jindal-led JSW Steel said on Friday “it was making all preparations to recommence
operations at all locations on lifting of lockdown in the next few days”.

Jindal Steel & Power (JSPL), which has been working at full capacity despite the lockdown, is
exporting 80 per cent of its production through Dhamra, Paradip, Vizag and Gopalpur which
remain functional. It sees logistics as a big hurdle.

In the past few months, India’s gross domestic product (GDP) declined because of weak growth
in manufacturing and construction. ‘The country’s growth is likely to hit a 30-year low of 2 per
cent in financial year 2020-21 (FY21) as economic recession grips the global economy,
following Covid-19 outbreak, Fitch Ratings said in its latest report. The rating agency in its
previous report had projected India’s GDP growth for FY21 at 5.1 per cent, lower than 5.6 per
cent estimated in December 2019.

State-owned Steel Authority of India (SAIL), which continues to face labour issues, is looking to
pull down its inventory after the lockdown ends.
 After lockdown, we plan to have strong MoUs with our existing clients to keep our order book
intact for FY21. If not higher, we target the level we saw last year at least. This should help bring
down inventory to some extent,” a senior official said.

5.Power Sector

India’s electricity demand plummeted this week as factories and offices were forced to close due
to the Covid-19 lockdown. Peak demand touched a low of 135 GW on Sunday against an
average of about 155 GW in March last year, pushing spot power prices on the Indian Energy
ExchangeNSE -1.21 % (IEX) to a near-record low.

The price discovered on the IEX Day Ahead Market for delivery on Wednesday was at ₹1.95 per
unit. The spot power price hit a low of ₹1.90 per unit in June 2017 due to excessive rainfall.
Sources said the closure of offices and factories, reduced buying by state distribution utilities and
the Indian Railways stopping passenger services resulted in the slump. Demand from the
industrial hubs of Maharashtra, Gujarat, Rajasthan and Tamil Nadu besides that from Punjab’s
farmers dropped substantially. However, there was some respite for power generators as hot
weather conditions in southern and western India on Wednesday led to higher demand.

“The average clearing price since Sunday is at Rs 2.15 per unit and price discovered on the Day
Ahead Market for delivery March 25 is at Rs 1.95 per unit,” said Rohit Bajaj, head of business
development at IEX. “Moreover, the sell bids on the exchange have been 2.5 times the buy bids,
which demonstrates the availability of ample liquidity for utilities to procure power reliably.”

6.Service Sector

India’s services sector activity contracted during March as the Covid-19 pandemic dented
demand, particularly in the overseas markets, while public health measures aimed at stemming
the outbreak curtailed discretionary spending, according to a monthly survey.

The IHS Markit India Services Business Activity Index was at 49.3 in March, down from
February's 85-month high of 57.5, as the new coronavirus pandemic pulled the service sector
into contraction.
 “The impact of the COVID-19 pandemic on India's services economy has not been fully realised
yet,” Joe Hayes, Economist at IHS Markit, said adding that the survey data collection (March 12-
27) was concluding just as Prime Minister Narendra Modi ordered a complete lockdown of the
country.

7.Tourism Sector

The coronavirus pandemic would have a debilitating impact on India's tourism sector with the
industry estimating an overall loss of Rs 5 lakh crore and job cuts for 4-5 crore people.

Of the total losses, the organised sector in the industry -- branded hotels, tour operators, travel
agencies which are the mainstay of the sector - may be hit the hardest with an estimated loss of
around Rs 1.58 lakh crore, according to Confederation of Indian Industry estimates.
The industry body has said that branded hotel groups are set to lose as much as Rs 1.10 lakh
crore, online travel agencies Rs 4,312 crore, tour operators (inbound and domestic) Rs 25,000
crore, adventure tour operators Rs nearly 19,000 crore and cruise tourism Rs 419 crore.
Sources in the Union Ministry of Tourism said the government is considering helping the sector
with soft loans, working capital and deferment on loan repayments.
The ministry itself, in a presentation to a parliamentary panel on transport and tourism last
month, had pegged the losses at Rs 5 lakh crore, quoting industry estimates.
Other than the organised sector, the tourism industry also gives employment to small homestays,
bread and breakfasts and small hotel operators and their services will also take a major hit.

8. Real Estate

The report said Bengaluru led the market with 30% of the total gross absorption, followed by
Pune (18% share) and Delhi-NCR (15% share). “Indian market is likely to see adverse impact
from the ongoing Covid-19 pandemic but is relatively better placed in terms of economic growth
with GDP expected to grow at 4.4,” said Sankey Prasad, managing director and chairman,
Colliers India.
 Commercial real estate saw marginal growth in leasing activity across the top seven Indian cities
in Jan-March, the first quarter of 2020 as the Covid-19 crisis forced large corporates to delay
signing agreements due to uncertain economic environment, a Colliers India survey found.
Office gross absorption across the top seven cities rose by mere 4% to 12.2 million square feet in
Jan-March 2020.

The report said Bengaluru led the market with 30% of the total gross absorption, followed by
Pune (18% share) and Delhi-NCR (15% share). “Indian market is likely to see adverse impact
from the ongoing Covid-19 pandemic but is relatively better placed in terms of economic growth
with GDP expected to grow at 4.4,” said Sankey Prasad, managing director and chairman,
Colliers India.

Across the seven major cities, the IT-BPM sector continued to dominate leasing activity in Q1
2020, accounting for 55% share while flexible workspace operators accounted for about 15%.
Overall leasing in upcoming couple of quarters is expected to be slow due to delayed-decision
making by occupiers. "We are projecting gross absorption of 45-50 million square feet, lower
than 2019,” said Megha Maan, senior associate director, research, Colliers.
The effect of Covid-19 on the market was seen from March with total supply increasing by mere
1% year-on-year to 13.2 million square feet after developers shifted focus on completing
projects, especially existing pre-commitments and attaining the occupancy certificates.

9.Construction

Construction work in the country has come to a standstill as the nationwide lockdown to combat
Covid-19 pandemic kicked in, triggering concerns that the companies would see revenues being
hurt and may even incur losses on some projects.
 Typically, the January-March quarter is crucial for most construction companies as it accounts
for 30-40% of their annual revenue. It is also the time when a bulk of orders are finalized,
industry insiders said.

“The financial stress upon the construction sector is expected to worsen over the coming year,”
said Shapoorji Pallonji Group, a conglomerate with focus on construction and real estate. “It is
too early to estimate the full financial impact of the coronavirus crisis. Even after the crisis is
contained and work resumes –hopefully by end of April 2020 – it would take another 7-8
months,” the company said in response to an ET query. “Moreover, the upcoming monsoon will
additionally and severely obs ..

10.Defense

The Army is training its troops to help state authorities in managing the country-wide lockdown
and any likely law and order situation as well as securing villages that may be badly affected by
the Covid-19 pandemic.

A major part of the training involves the type of equipment they need to carry, clothing to be
worn and precautions to be taken for themselves and in treating and helping the villagers.

While the Army has been liaising with the civil administrations of Maharashtra, Delhi, Uttar
Pradesh, Karnataka, Kerala and Rajasthan, no requisition of troops has been made yet.
Officials, on condition of anonymity, said most of the state civil administrations that the Army
has spoken to would be able to manage the nationwide lockdown for at least the next fortnight.
However, some Army formations have been training troops to be prepared in case of being called
to help.

Summary

As our new financial year commences, the Novel Coronavirus (COVID-19) has infected more
than eight hundred thousand people in more than 150 countries1 - a scourge confronting all of
humanity, impacting lifestyles, businesses, economies, and the assumption of common well-
being that all of us have largely taken for granted.
Even before the onset of this pandemic, the global economy was confronting turbulence on
account of disruptions in trade flows and attenuated growth. The situation has now been an
aggravated by the demand, supply and liquidity shocks that COVID-19 has inflicted. Once the
pandemic is controlled, the shape and speed of the recovery in the US and China will be key
factors determining the nature and traction of global economic recovery.

It is our expectation at this time that the course of economic recovery in India will be smoother
and faster than that of many other advanced countries. Indeed, the UNCTAD in its latest report
‘The COVID-19 shock to Developing Countries’ has predicted that major economies least
exposed to recession would be China and India.

Comments

The increasing widespread of COVID-19 has transformed the world’s hustle into varying
degrees of uncertainty. One of the few things that seem fairly certain is that the current downturn
is fundamentally different from recessions we have seen in the past. This is not just another turn
of the business cycle, but a shakeup of the world economic order. The collective experience of
going through this common crisis will lead to questioning of fundamental assumptions and
priorities which will be both a challenge and an opportunity. We have summarized seven ways
in which the business landscape will shift, not only in India, but the world around. Leveraging
these will certainly help navigate the economically and socially viable path to the next normal:

1. The shift towards localization

Conclusion

In sum, this crisis is a story with an uncertain ending. However, what is clear is COVID-19 has
introduced new challenges to the business environment which call for a measured, practical and
informed approach from political and business leaders. We also need to realize that COVID-19
is likely to lead to a new normal – being aware of and preparing for these shifts will help
businesses and economies navigate in the post COVID-19 world

References

1. https://www.businesstoday.in/opinion/columns/coronavirus-in-india-covid-19-india-
lockdown-economy-cost-gdp-gva-nationwide-shutdown/story/399477.html
2. https://www.thehindubusinessline.com/economy/agri-business/icar-assessing-impact-of-
covid-19-lockdown-on-agriculture-allied-sectors/article31262156.ece#
3. https://thewire.in/political-economy/lockdown-mining-steel-essential-regulatory-
oversight
4. https://economictimes.indiatimes.com/industry/energy/power/power-demand-drops-as-
offices-stay-plugged-out/articleshow/74819188.cms?from=mdr
5. https://www.bloombergquint.com/economy-finance/covid-19-pulls-indias-service-sector-
activity-into-contraction-mode