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Strict restrictions amidst rising cases to impact small business and the economy

With more restrictions and curfews being imposed across states and cities amidst rising cases, we look at how these could take a toll on small businesses and the overall economy.

April 22, 2021 / 11:54 AM IST
Uttar Pradesh state, home to some 240 million people, has ordered a one-day lockdown on April 18. Maharashtra, which includes Mumbai, Gujarat and IT hub Bangalore's home state Karnataka have also imposed restrictions on movement. (Image: AFP)

Uttar Pradesh state, home to some 240 million people, has ordered a one-day lockdown on April 18. Maharashtra, which includes Mumbai, Gujarat and IT hub Bangalore's home state Karnataka have also imposed restrictions on movement. (Image: AFP)

As states and cities impose strict curfew measures amidst rising infections in the second COVID wave, businesses and small scale industrial units, which were finding their feet after last year’s shock, are likely to get jolted again.

India reported 3.14 lakh new COVID-19 cases on Wednesday, highest-ever recorded in any country, as per April 22, update. With India’s COVID-19 daily tally exceeding 2 lakh cases for eight straight days, a few states and cities have imposed curfews and lockdowns to contain the spread of infections.

How stringent are these lockdowns?

The Oxford COVID-19 Government Response Tracker measures the strictness of a government’s policy responses towards COVID-19 on an index that calculates the mean score of nine policy measures, each taking a value between 0 and 100.

A higher score indicates a stricter government response. The graph clearly shows that the government response with regards to stringency has changed over a period of time. It dropped to its lowest in March this year since the lockdown was imposed in March 2020, picking up again in April with a spurt in cases.


Moreover, in his speech yesterday, the PM asked the states to treat lockdown as the last option. “We have to concentrate on micro containment zones and have to try our best to avoid lockdown,” he said.

Still, as the COVID cases continue to accelerate and the healthcare infrastructure is swamped, local authorities might have no option but to make the lockdowns stricter.

For example, the Maharashtra government has been progressively tightening curbs after first imposing a 15-day-long 'Break the Chain' curfew from April 14. On April 20, it said grocery and other permitted shops would be allowed to remain open for only four hours till May 1.

Further on April 21, the state government ordered that private transport will be permitted only for emergency or essential services with new restrictions coming into effect from 8 pm on April 22. All government offices are to operate at only 15 percent employee strength from the earlier 50 percent while guests at the wedding ceremony restricted to 25 down from 50.

These containment measures could have a considerable impact on the economy. We are already seeing a spare of migrant workers starting to move back to their hometowns because of these partial lockdowns.

Impact on small businesses and economy

“The extent to which restrictions are imposed across multiple states on manufacturing, as well as the availability of migrant labour will have a critical bearing on the supply disruptions that may emerge,” Aditi Nayar, Chief Economist at ICRA said. “With sentiment souring, there may be some loss of demand in H1 FY2022, especially in the contact-intensive sectors, and some shifting of demand from H1 to H2 FY2022,” she said.

With restrictions, supply chains are affected, impacting productivity of small manufacturing units and businesses, according to experts.

“The labour migration is happening like last year, though it is lower in number but people are travelling back to their hometowns,” said Lalit Gandhi, Senior Vice President, Maharashtra Chamber Of Commerce, Industry & Agriculture. “Thus the challenge for small industries will be to get their labour back in time,” he added.

Small industry lobbies are asking the government to have a level playing field for all sectors and not arbitrarily decide what is essential and what is not.

“We are insisting the government that whatever you intend to do should be for all trades and not specific--like medical or essential services,” said Gandhi.

Small businesses, trading in non-essential commodities, despite not attracting huge crowds--like essential services--are affected, according to Gandhi. “Non-essential commodity traders have been making huge losses since last year due to such restrictions. Almost 25 percent of small shops are closed permanently due to COVID-19 impact and e-commerce businesses that continue to operate,” he said.

Gandhi also said that demand has been affected as a result of which production has taken a backseat. Except for pharma and essential commodities, impact is seen across sectors and segments. “The loss estimated for the first 15-20 days could be somewhere around Rs 20,000 crore for small traders in Maharashtra. This is a sizable amount impacting the survival of small traders,” he said.

To this, he suggests that the government should consider extending financial support to these small businesses by providing loans at a lower interest rates.

India’s GDP forecasts have also been revised by rating agencies. Economic output is now expected to grow by around 10-10.5 percent in FY2022 from earlier 10-11 percent, according to ICRA’s Nayar.

“For Q1 FY2022, we had earlier expected a GDP expansion of 27.5 percent, boosted by the low base. With the unprecedented surge in cases and evolving restrictions, the pace of GDP growth in the ongoing quarter may be tempered to 20-25 percent.” she added.

The reasons attributed for downward revision are: “continuation of this wave of infections and an extension of the restrictions imposed so far, relatively severe restrictions being imposed in additional states, and the existing vaccines not being effective enough against new variants of the virus,” Nayar said.
Chaitanya Mallapur
first published: Apr 22, 2021 11:54 am

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