Soon after his return from Dubai on March 4, Javed Azmi, who operates a large-scale printing press in the city, sitting in the confines of his plush office was sure that nothing was going to change. And then the coronavirus outbreak changed everything.
On Saturday, Azmi received a call from a leading multinational client who informed him about their inability to pick up an order as schools, which were their intended customers, were being shut. They also informed him that his payment, running into a few crores, would take time to process as most of their staff were now working from home.
“Till early last week everything was running smoothly. Within four days, however, everything has been disturbed due to coronavirus disease (COVID-19), which apart from creating a health scare has also affected the working capital of most of the entrepreneurs in the city,” Azmi said.
While economists for weeks have been warning about a possible disruption that coronavirus scare could cause to the economy, it is only now that its effects, in form of an apparent slowdown, are manifesting for businesses in Mumbai run by thousands like Azmi, who shore up the GDP (gross domestic product) of Mumbai, making it the financial and commercial capital of the country.
Since the 1992-93 Mumbai riots, no other crisis has enveloped Mumbai’s economy so quickly — movie theatres and malls have been shut, money-spinning tournaments, like IPL, have been called off, numerous film shoots and movies have been put on hold indefinitely and even temples, like the Siddhivinayak, which were deemed to be recession-proof, have been closed for visitors.
Mumbai contributes roughly five per cent to India’s total GDP. The service sector accounts for much of the heft that Mumbai has as an economic powerhouse. Estimates suggest that the city’s service sector industry has an annual turnover of over Rs 4 lakh crore. And stalling even half of the service industry could cause a wealth loss of Rs 16,000 crore per month.
In the last seven days, when the coronavirus infection intensified, economists believe businesses in the city may have suffered a loss of business worth Rs 4,000 crore.
“In the service sector, to a large extent, every day’s income opportunity is perishable. While the manufacturing sector, poor sales of a particular month or quarter can be made up in the next. A family which can’t buy a refrigerator today due to shutdown can postpone its decision to buy the product in the immediate future. However, in the services sector, a restaurant that is losing business today because customers are avoiding public places can’t expect to make up the loss in the next month. Postponing purchase is akin to a loss of income for the sector. Nearly 80 per cent of Mumbai’s economy is driven by the service sector and closure of even half these establishments is bound to cause financial losses,” economist Ajit Ranade told The Indian Express.
The business has almost dried up overnight for restaurants and theatres among others, which depend on large groups of people. The Federation of Hotel and Restaurants Association of India has claimed that the clientele in restaurants would have dropped by more than 40 per cent.
The threat from the virus to tourism is also very significant. Mumbai annually receives roughly two million foreign tourists. Close to 40 per cent of these tourists come during March to June period.
A Global Destination Cities Index report by Mastercard had pegged the total annual spend of these visitors to as much as $3.6 billion which, as per the recent exchange rate would be as high as Rs 26,280 crore annually. Stopping inflow of international tourists for one month alone would cause an income loss of Rs 2,200 crore a month, which will be felt primarily by airlines, hotels, malls, multiplexes and restaurants. Indian Hotel and Restaurant Association (AHAR) president Shivanand Shetty said, “There has been a substantial reduction in clientele.”
Many companies in the information technology sector are also facing the pinch due to the physical restrictions that have been imposed due to the outbreak.
While many of the bigger companies have deep pockets to tide over the crisis, the unorganised sector has already started feeling the pinch. Dharavi, which is a hub for small-scale industries in sectors such as leather and waste recycling industries, is already seeing a gloom.
“Ninety per cent of the businesses operating out of Dharavi is in turmoil. This outbreak has crushed all hopes of an economic revival. I have temporarily shut down my operations and moved to my native place last week hoping that this crisis will pass over soon,” said Zahid Khan, a member of Dharavi Businessmen Welfare Association. Khan, who makes corrugated boxes, added that business has come to a virtual standstill in parts of Dharavi.
This downturn is not only hurting entrepreneurs but also causing extensive damage to the most vulnerable sections of the economic chain — daily wage workers. “A lot of people who I know don’t have the essential capital to pay their workers immediately. This is that time of the year when workers prefer to return home with their savings, which is then spent in the rural economy to either build a house or meet other expenses. Shortage of money will soon hurt rural pockets and create more unrest among labourers working in Mumbai,” said Javed Azmi.
Economists have also pointed out that things will only worsen if the situation continues for the next few weeks. “The real impact will be felt in the coming few weeks when the full-scale of the outbreak manifests itself. If things deteriorate at a fast pace then I am sure that the city will have to brace itself for the contraction of its economy, which could lay the ground for recession. It all depends on how quickly we are able to tackle the crisis,” another economist said.
Many believe that even if the outbreak is curtailed, the havoc that it has unleashed on the finances will mean that a quick turnaround of Mumbai’s economy would be unlikely. “The service sector may see an upsurge as soon as some normalcy is restored. However, for the manufacturing sector, which will see a lot of rationalising during the downturn, it will take some time for things to return to normal. Estimates suggest that it would take at least one economic quarter for things to stabilise once the outbreak is brought under control,” said Madan Sabnavis, chief economist at CARE Ratings.
Many have also claimed that a turnaround is unlikely without a government stimulus.
“What the industry and the city would require for a rapid rebound are injections in terms of financial input. The lowering of the GST slabs and improving credit availability will play a deciding role in ensuring that the city’s economy emerges stronger,” Niranjan Hiranandani, co-founder and managing director of Hiranandani Group, said.
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