The author has long experience and exposure in the industry at executive level and has worked with ILO as Senior Employers' Specialist for South Asian Region. He has taken stock of the situation in view of the present Covid-19 pandemic, its antecedence and impact on enterprises today.
There were three milestone events of the last century that impacted people, nations and enterprises. The first milestone event of last century was end of First World War in 1918. The end of the First World War saw the spread of Spanish flu pandemic in various countries of the world including India. The Spanish flu, also known as the 1918 flu pandemic, was an unusually deadly influenza pandemic caused by the H1N1 influenza A virus. Lasting from spring 1918 through spring or early summer 1919, it infected 500 million people, i.e. about a third of the world's population at that time. It is estimated, that in India, nearly 18 million people which was 6 per cent of the population at that time, lost their lives in this disease, which locally was called plague. This pandemic impacted many families in India. Mahatma Gandhi lost his daughter-in-law and a grandchild in this pandemic, and was himself a victim and was cured and we all know his contribution to India in the freedom struggle.
The second milestone event of last century was end of Second World War in 1945. Second World War was a major conflict in human history, which marked the death of 70 to 85 million people in the world, most of whom were civilians in the Soviet Union and China. Following the end of Second World War, most countries became independent nations between 1945 and 1965 varying from a peaceful to protracted revolutionary process. Also, the end of Second World War led to the birth of the United Nations. Also, the International Labour Organization (ILO), which was born at the end of First World War, became a specialised agency of United Nations. Also, at the end of Second World War, countries in Europe gradually lost their colonies.
Hence, the European countries opened their economies with reference to movement of people, currency, goods and information by becoming open economies. At the same time colonies that became independent nations, took an approach of being closed or open or mixed economies depending upon their choice. India on independence in 1947 chose to be a mixed economy, with the core sector such as cement, steel, coal, electricity, interstate bus transport, railways, airlines, etc. being price controlled or/and state controlled; and also setting up a large number of public sector undertakings later and also nationalising sick private sector units plus the banks and insurance business plus the oil companies. We in India had strict control on movement of foreign currency in terms of a monitored exchange rate, high import duties coupled with Rupee trade with USSR, strict rules with reference to visas on employment of foreign nationals.
The third milestone event of last century was end of Cold War in 1989. The Cold War finally came to an end in 1989 with the fall of the Berlin Wall and the collapse of the communist regimes in Eastern Europe as well as USSR, a former communist country in eastern Europe and northern Asia. This led to all countries in the world that were closed or mixed economies becoming to varying degree open economies including India. It is in 1991, that India shifted gear from a mixed economy to an open economy, by devaluing the currency, permitting flow of foreign direct investment plus foreign institutional investment, reducing and rationalising the import duty based on WTO tariffs and permitting foreign made goods to be easily imported and available, relaxation on movement of persons from foreign countries to work in India.
The impact of the opening up of the economy in India was that large number of domestic enterprises post 1991 restructured their product portfolios as well as resources, including the permanent workforce working for the enterprise through voluntary retirement scheme (VRS), as labour laws did not go through change. The restructuring exercise of enterprises led to enterprises getting various activities, which were done inhouse being outsourced and/or subcontracted resulting in substantial growth of ancillaries, as well as the supply chain. Certain enterprises got acquired under new ownership and in certain cases also closed down.
New milestone event
In the present century, we had SARS (Severe Acute Respiratory Syndrome) coronavirus (SARS-CoV) "identified in 2003 infecting humans in the Guangdong province of Southern China in 2002. Then Middle East Respiratory Syndrome (MERS) a viral respiratory disease identified in Saudi Arabia in 2012. Then Ebola Virus Disease (EVD), formerly known as Ebola haemorrhagic fever outbreak in 2014-2016 in West Africa covering Guinea, Sierra Leone and Liberia, but none of these impacted the world and the enterprises of every country.
However, Coronavirus disease 19 (Covid-19), which is a highly transmittable and pathogenic viral infection caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2), emerged in Wuhan in 2019 has affected 212 countries and territories around the world. Covid-19 has impacted every country of the world, and this pandemic is a mile stone event of the current century which is impacting life, livelihood, enterprises and the economy of every country in the world.
There is no easy solution to preventing the spread of the Covid-19, unless the citizens fully cooperate in implementing the lockdown guidelines laid by the government of the country. Countries will have to review their public health expenditure percentage to country's GDP for the future and bring it to at least three to five percent and this is not easy.
Post Covid-19, the international trade will go through a change, as countries are likely to reduce their dependence on China, which had become a manufacturing hub for a large number of items for many countries after the end of cold war 1989. Countries world over will review their policies on global supply chain, as countries would work on strategies for being self-reliant in certain specific sectors to protect domestic enterprises and reduce dependence on imports and also safe guard jobs for the locals arising from the downturn. International deglobalisation is likely to be an approach by certain countries to reduce dependence of imports in specific areas.
Also, there might be reluctance by countries depending upon their size and economic strength, to abide by the agreed WTO tariffs; and probably WTO itself may get a jolt and be restructured, wherein its role could go through a change. Also, the funding of international agencies like WHO from some of the countries has already gone through a change, though the role of an organisation like WHO becomes vital and relevant, when such a pandemic impacting countries of the world occurs and needs to be reported and acted upon to prevent the spread. Also, WHO will have to do serious introspection with reference to its funding, performance plus its role and this could result in some restructuring of the organisation.
Impact on Indian enterprises
The Government of India adopted the lock down approach from March 25, 2020 initially for 21 days which in phases got extended till May 31, 2020 and may get further extended if needed, so as to reduce the spread of coronavirus disease 19 (Covid-19) amongst the citizens and also to improve the preparedness of the various states and districts in the country medically for tackling the epidemic. The annual public health expenditure by states and union territories together in India amounted to around Rs 1.58 trillion, which is estimated to be around 1.28 per cent of the country's GDP and this will have to go up in the future.
The Government of India has come forward with an economic package for enterprises, farmers, migrant workers and individuals for reducing the negative impact of the lock down. Enterprises and individuals need to look at the economic package and see how it would benefit them in reducing their financial stress and take benefit of the same wherever possible. The intensity of the impact of the Covid-19 for each enterprise differs based on the sector in which it operates, cash liquidity, profitability and location.
There are certain sectors like aviation, travel, tourism, hotels, restaurants, automobiles, capital goods, film production, movie theatres, entertainment, trade fairs, event management, malls, real estate, etc., where the dip in revenue for enterprises in the financial year 2020-21 is likely to be more than 50 per cent because of substantial fall in demand. If an enterprise in these sectors has a low cash liquidity, coupled with low profitability, then these enterprises are likely to have a tough future for independent existence and in the worst case could lead to continue to be sick or being acquired by interested buyers, unless innovative steps are taken by the management to undertake heavy cut in fixed cost to survive. However, if they have a high cash liquidity and low or negligible debt to equity, then they would be able to sail through the turbulent duration of Covid-19 period, survive and later also grow.
There are certain sectors like pharmaceuticals, hospitals, medical equipment, PPE, IT, mobile networks, mobile phones, app-based platforms doing home delivery, FMCG, agrochemicals, fertilizers, seed growing and processing, dairy and dairy products, food processing, cash crops, tobacco, cigarettes, alcohol, etc. where the dip in revenue for the financial year 2020-21 for enterprises in this sector is likely to be low. Even if an enterprise in this sector has a low cash liquidity coupled with a medium/high debt to equity and low profitability, it will survive in the post Covid-19 period, though there will be some negative impact to enterprises in these sectors if they are located in the red zone.
Situation of enterprises in India
The impact of COVID-19 is that the smooth functioning of every enterprise whether in the informal or the formal sector (micro, small medium or large) in India has been tripped and each enterprise will continue to have a time period of tripping based on which colour zone (i.e. red, orange or green) they are located, as activity and movement will be hampered in red zones. Also, the duration for enterprises to operate before a cure for Covid-19 is available could be from two quarters to six quarters starting April 1, 2020, thus various scenarios will emerge for enterprises.
The duration of the tripping for an enterprise will depend on the sector and zone in which it operates, and this could result in a V shaped curve or a U-shaped curve or a L shaped curve. Functioning of each enterprise has been hampered due to the lockdown; there is a fall in income for practically every enterprise because of the lock down, likely continuation of a certain stagnation of demand for certain time period will be there in certain sectors, and there will be a revival of demand later for all. Every enterprise will have to assess in which curve they fall. For an enterprise falling in a L shaped curve, because of the sector and zone in which it operates, a long duration of low negligible demand will adversely affect them and all-out effort needs to be made to move to a U-shaped curve by innovative strategies.
One thing good on present date is that the number of mobile telecom subscribers in India as of December 2019 is over one billion, that means practically every working individual, including workers in the informal sector have mobile phone connectivity, though everybody will not have a smart phone. Also, internet usage in India has exceeded half a billion people and is estimated to be over 600 million users in end 2019. Enterprises continued their operations by asking employees to work from home wherever possible. The option of working from home has limitations in the case of manufacturing enterprises, as the input material has to be converted into a finished product, which involves movement and processing of the input material coupled with physical presence cum activity of persons to ensure completion of the operations safely. The present manufacturing facilities in the factories in India are not designed such, that they can operate without the physical presence of people. However, manufacturing enterprises are learning to operate their factories with limited workforce, at the same time ensuring compliance of the safety protocols laid down by the Government arising from Covid-19 pandemic in the country.
Physical distancing norms at work place will impact every enterprise, however the labour intensive enterprises will have a higher negative impact, as either the numbers engaged have to be reduced and/or the working method modified, so as to ensure maintenance of the required physical distance while working. Enterprises functioning in remote areas and small towns will be less impacted for availability of work force, than the ones situated in or near metropolis or large city.
Tackling the situation
Each enterprise in India will have to find its own solution for tackling the situation, as this is a phase of disruption for everybody. However, some things are common which the top management of each enterprise will have to work upon.
The business and employment model of enterprise in India post Covid-19 will drastically change compared to the business and employment model pre Covid-19. We all have to adapt to a new lifestyle as well as a different working style of enterprises as the Covid-19 is a tsunami, which has affected the world. It will take time before a vaccine to prevent the spread of Covid-19 is available to all of us.
Enterprises are likely to restructure their fixed as well as variable cost, and this could impact the persons that are presently employed at all levels in certain enterprises. Most enterprise post 1991 in India adopted a work force model wherein the enterprise had people to work and not employees. Hence, most enterprises presently have maximum executives, limited workers, and maximum contract workers through contractors/service providers. Presently in India, the contract workers in most enterprises are interstate migrants. The interstate migrant contract workers presently are making all-out effort to return to their home state by modes of transport that they consider viable, and substantial numbers have moved and will move.
It is a reality that Covid-19 has negatively impacted life, lifestyle of every individual and every enterprise whether in the informal or the formal sector (micro, small medium or large) in India. We, Indians have made all-out effort to ensure that we lose minimum lives of our citizens as our first priority. At the same time, we need to ensure that the enterprises and businesses in the informal and the formal sector while going through the hardship survive and continue to live which I am confident we all will do.
ABOUT THE AUTHOR: Dr. Rajen Mehrotra is Past President of Industrial Relations Institute of India (IRII), Former Senior Employers' Specialist for South Asian Region with Internation.al Labour Organization (ILO) and Former Corporate Head of HR with ACC Ltd. and Former Corporate Head of Manufacturing and HR with Novartis India Ltd.
Published in April - May - June 2020 issue of Current Labour Reports and Arbiter.