With core sectors hit hard, recovery could take months if not years
As COVID-19 continues to wreak havoc on markets across the globe, the impact the virus will have on the economy of a state like Kerala in days to come could be mightier than one could comprehend.
Financial experts are saying that the virus is all set to break the back of a number of sectors that bring core revenue to the state and thereby push Kerala further into economic doldrums, the likes of which has not been seen in recent times.
For a state that is yet to recover fully from the disastrous floods of 2018, the advent of COVID-19 could not have come at a worse time.
Even when the state seems to be having a certain upper hand in fighting the virus by successfully keeping it away from taking the form of a community transmission thus far, the battle on the economic side is perhaps the one that it is likely to lose even before it begins.
From Tourism to Information Technology (IT) to horticulture and its supporting export industry to entertainment to the sale of alcohol - all the milch cows of the state have come to an absolute standstill.
While the 21 days lockdown has literally shut down any form of worthwhile business in the state similar to what one perceives across the country, the long term implication of the lockdown and the unpredictable time frame of the virus is what is likely to hurt sectors like tourism, IT and exports.
“By going for a lockdown our aim has been to flatten the curve of the coronavirus and we all are very confident at this point in time that it should work. But the impact on the economy may perhaps go beyond our mitigation efforts. Tourism is near zero at the moment and another big sector for Kerala which is IT is likely to see some terribly months ahead,” G Vijayaraghavan, former Planning Board Member and Founder CEO of Techno Park, India’s premier IT park in Kerala told The Lede.
Vijayaraghavan goes on to say that apart from a few local businesses which may still go on to keep necessities running, almost everything else will be hit really hard in the next days and months to come.
“We are waiting to see the real impacts on a range of sectors in the next few months. At the moment we can only forecast, and the forecasts are really bad. I do not expect any sort of revival in any sector at least for the next 12 to 18 months post bringing Corona to a control,” added Vijayaraghavan.
“We have been devastated completely. Even if the Coronavirus does not kill us, debt and poverty will. There is no hope that tourism will revive anytime soon simply because even after everything settles down people are not going to travel anytime soon, given the fears associate with COVID especially from outside India. So we have no hope next season also,” says Shanoj Kumar who runs a prominent houseboat service in Alappuzha.
Shanoj’s words reflect the reality that is staring at Kerala’s tourism industry. COVID-19 has simply broken its back.
Take the case of houseboats, which is easily a prominent itinerary in any tour package that is devised especially for chartered tourists from outside India. Apart from that, lakhs of domestic tourists who flock to Alappuzha and Kumarakom every year to sail across the pristine beauty of the backwaters, which is famously called the ‘Venice of the East’.
But since the middle of February the waters here have been still as more than 1300 houseboats have been anchored without work.
Shanoj says that if they lose two or more seasons’ business then it would have a cascading effect on their workforce too.
“See our workforce is local people because only they know the geography of the lake, its natural barriers, the danger spots etc to deal with any eventuality. So we cannot have migrant workers even though they are easily available and are cheaper to employ. With COVID hitting us, these guys are now jobless. But the challenge before us is to somehow retain them before they search for some other profession,” added Shanoj.
With no guests and the houseboats hardly moving, retaining the workforce would become close to an impossible task in the coming months.
Matters do not end there. The houseboat business by itself is an industry in this area around which an entire market thrives throughout the year. It is this entire economic ecosystem that gets displaced when the houseboats are grounded.
“I have around 12 workers with me working in three of my boats. They are all sitting at home with no work now. No idea how long I can retain them. There are many allied workers, an entire market that depends on the houseboat business. Most of these people have taken overdrafts from banks to run the show. Though government has declared moratorium on loans those of us who have taken overdrafts don’t get any benefits,” Shanoj added.
The revenue per day for the houseboat industry alone in the districts of Alappuzha and Kottayam would run to more than Rs 1.5 crore per day which runs into a huge sum when the entire season is taken into account.
A five-hour drive from the backwaters take you to the hills in Munnar, a destination that is among the top in any tourist website.
But Munnar is a deserted town today with only a few fruit vendors and shops selling essential items. All the resorts in Munnar, both big and small, running into hundreds have been shut with just the security staff staying behind.
While last March saw 65% occupancy in rooms, which in itself was less owing to the floods of 2018, the first week of this March it again dwindled to a dismal 25%.
“If you want to know what the loss could be this time round, simply take the statistics before the floods when Munnar was doing really well and then take 90% of that revenue out of the equation. See we were hoping for some form of revival this year even though we knew that a recession was around the corner. But this was a bolt from the blue. Now I don’t think even next season we will see any change,” Mikesh Joseph who owns Kofiland resort in Munnar told The Lede.
Mikesh also added that resorts across Munnar are on a complete lay-off period. “Most resorts have no option but to let go of the staff. It’s like either you take leave without pay or just quit. There is nothing else you can do when its completely shut,” added Mikesh.
With big resorts across the state including the ones owned by the state’s tourism body shutting shop, the condition of the lesser hotels and homestays are obvious.
From Munnar to Alappuzha to the famous Kovalam beaches outside the state capital, the story is one and the same. Tourism, Kerala’s favourite revenue has taken an unprecedented beating from COVID-19.
“As far as Kerala is concerned 10% of the GDP is from tourism and here we are seeing an unprecedented close down, the likes of which we have never seen before. If last year the total revenue of Kerala tourism was Rs 45,000 crore, this year the expectation was around Rs 50,000 crore. Right away we will lose some Rs 25,000 crore in revenue. What will be the final figure is simply impossible to say now,” EM Najeeb, Chairman & Managing Director, ATE Group of Companies told The Lede.
Najeeb reiterates that though Kerala government has come out with a COVID-19 package to help the people, it would need to do a lot more specifically to salvage the tourism industry.
“We have asked the state government, the union finance minister and even the NITI Aayog to bail out the industry. Hopefully we will see something coming up. See even aviation is also hit very badly. So unless aviation starts, tourism is not going to happen,” added Najeeb.
COVID-19 simply does not seem to be sparing anyone and another big sector that has taken a hit is Information Technology (IT).
GTech or better called Group of Technology Companies is a strategic association of 400 IT companies in the state mainly based out of Techno Park, a premier IT park that Kerala gave to the rest of India.
GTech representatives say that COVID-19 has literally put the entire IT sector in Kerala in a state of flux and the next few months will decide the make or break of innumerable small and medium sized companies in the state.
“We put in a survey to all the member companies in the wake of COVID to know the ground reality. Most of them came back with the response that there is a big loss of future contracts and delayed payments. Another concern is bills do not get passed because most of the clients of these companies are based in US, Australia or Europe which are very badly affected by COVID. In perhaps 2 to 3 months we will see the real impact on the ground,” Vishnu V Nair, CEO, GTech told The Lede.
While most of the big companies like Infosys, TCS, UST Global and Cognizant find their name in the registry of the GTech, 70-80% of the membership of GTech consist of small to medium sized companies for whom tiding over such a crisis is no mean task.
“See large companies with deep pockets will have cash reserves to somehow stay afloat during this period. But the issue will be with smaller ones who will at the max have money to last perhaps three or four months. What will they do after that is a big question,” added Nair.
Around 85% of the IT companies in Kerala have given permission to their employees to work from home, a model some experts say would also help the companies cut costs. Only those needing to perform critical functions like manning the servers are asked to report for office duty.
“See many companies have to spend at least Rs 8000 per month per seat per employee. So if you are able to make work from home for majority of the employees it helps in cost cutting which is quite a big deal for small and medium sized companies. That is one silver lining amidst all this. Anyway the coming months will tell us where we go with all this,” Pinaki Krishnapillai who runs MicromCRM, out of the Techno Park at Thiruvananthapuram.
Unlike tourism it is not easy to fathom the loss the IT sector would incur till the Corona onslaught is over. While the next few moths would certainly give an indication as to where the industry is headed it would take some time till the loses could be counted.
With tourism dead and IT down Kerala economy’s battering is a foregone conclusion, and with the government shutting down bars and beverage outlets, the other big revenue generating arm of the state government, the economy certainly has nowhere to look forward to at the moment for a revival.
While the government is contemplating starting online sales of alcohol it would not be as easy as it would require changing the present rules in liquor policy and even such a sales strategy might not bring the desired revenue as majority of the consumers are from the daily wage working class or the lower income groups who do not have the time or the patience to buy online.
But there is certainly one field that the government might immediately be able to intervene and make a change. In fact one such industry that cries for it is the pineapple industry in central Kerala.
The Vazhakullam pineapple is a product that is famous as far as Maharashtra and Delhi. But with the 21-day lockdown declared the pineapples are getting rotten on the fields across Vazhakullam, a little village.
“Since the last one week not a single pineapple could be moved out of this area. Around 3000 tonnes of ripe pineapple are ready to harvest at our fields. With every passing day that increases but in the place of 80 truck loads going in a single day to different parts of the country, not a single load has gone over the past week. The loss is around Rs 2 crore per day,’’ Jose Perumpillikunnel, president All Kerala Pineapple Merchants Association told The Lede from his house in Vazhakullam.
Unlike the floods of 2018 it is a different kind of disaster that has struck the cultivators this time round. If the floods destroyed all their crops in its entirety a year and a half ago, the Coronavirus this time round has played a more painful act.
It has shut down their markets which means even if they get a good harvest there is nowhere to sell their product which is among the most perishable ones.
“It is deadly blow for our aspirations. We were expecting to have a good harvest and were hoping to turn the bad times of 2018 into better days. But Corona has pushed at least 20,000 families into uncertainty now. Even during 2018 floods we may have lost perhaps a month or so. We had confidence that we could revive. But this is incomparable,” added Perumpillikunnel.
With Ramzan not far away pineapple cultivators were hoping for some big returns.
It is here that economists say that the government should step in and procure their products and supply it to shops and markets which are open to selling essential items. Since the pineapple industry brings around Rs 1000 crore per year to Kerala’s economy the state should have ideally not think twice on helping these cultivators.
“Corona has not affected the production process. But what it is affecting is the exchange. Only the exchange commodifies the product which does not happen here. That is where the crisis is. I think the state government should step in and ensure that the delay of exchange does not happen by putting up a logistical help for these farmers. This is crucial,’’ CP John, former State Planning Board Member said.
Similar and perhaps worse is the situation of the sea food exports. Kerala is one of the largest seafood exporters in the country but since Coronavirus had hit the state the fishermen has hardly gone out fishing, forget exporting the catch.
“We are facing a twin problem. There is hardly any fishing happening now which is one. But more than that, all out markets have been hit terribly. US, China, Europe and Japan are our core markets where we send mainly shrimp and then squid, cuttlefish and octopus. But Corona has shut down everything in these countries. We are yet to calculate our loses,’’ Alex Ninan president of Sea Food Exporters Association (Kerala Region) told The Lede.
As per figures, seafood exports bring revenue to the tune of Rs 47,000 crore annually to the country and Kerala contributes roughly 10% of it. But with most of 2020 likely to be lost, the revenue loss for the state is written on the wall. Experts are indicating a 60% downswing right away.
India’s shrimp export to China alone had touched a record growth of 42% on 2019 compared to the previous year standing at USD 1 billion compared to 700 million in 2018 before Coronavirus sent everything upside down.
But there is another issue that worries this sector. “Processing seafood for export is a highly skilled labour which requires a lot of training. So we are left with no option but to retain them at any cost which adds tremendous pressure to the already strained business,” added Ninan.
The state government has meanwhile declared a Rs 20,000 crore COVID-19 package for the state. But it remains to be seen how and where the money will be allocated.
While the majority of the economists have raised their eyebrows at the enormity of the package asking where the money will come from, Thomas Issac the Finance Minister made things clear with this sarcastic tweet -
“Where is money from? What is the magic? Elementary my dear Watson! We are front loading borrowing and spending to beginning of new fiscal and re designing some of the schemes,” he tweeted.
So while the state hopes to achieve the end by front loading borrowing the finance minister himself agrees that a lot of it will depend on what the Union government decides to give the states to mitigate the COVID-19 crisis.
Free ration for all card holders, two months of welfare pension in advance, subsidised meal programme at Rs 20 starting the first week of April are some of the big announcements made so far.
Also included in the package is an allocation of Rs 2000 crore for loans through the state’s women self help group Kudumbashree as part of its micro-finance programme.
A Rs 500 crore health package, the details of which are awaited, rounds up Kerala’s COVID-19 package.
There are a number of sectors in Kerala which could still be impacted by Coronavirus in a big way. Already Mollywood and the rest of the entertainment industry has been shut.
The Gulf remittance which still is second only to tourism as a source of revenue is surely set to take a severe beating with COVID-19 playing havoc across the Middle East.
The only silver lining is perhaps that unlike other big economies COVID-19 has still not taken away lives in a big way in Kerala till this report was being filed.
If it stays like that with no community spread in days to come, Kerala will perhaps rebuild faster.