Services firms brace for trouble as cases surge

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India’s services industry, which was limping back to normalcy after bearing the brunt of the pandemic last year, is now again staring at a crisis as the second wave of coronavirus infections sweeps through the country.

Businesses that provide services such as travel, dining, shopping, salons and movies, requiring contact or face-to-face interactions that many are now likely to avoid, are bracing for a long summer of struggle, just as they thought they had finally emerged from the economic maelstrom of the past year.

The surge in new Covid cases has prompted several state governments to impose new restrictions on economic activity. In Maharashtra, curbs have been imposed on malls, bars, movie theatres, restaurants and non-essential shops through the end of this month.

The Association of India (RAI) is worried that a cash crunch could cripple the industry. “The retail industry will again start experiencing severe liquidity challenges due to the retail lockdown in the state, while the fixed operating costs remained intact. It is expected that the retailers pay electricity bills, property taxes, among other things, in spite of being shut,” said Kumar Rajagopalan, CEO of RAI.

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The new order will impact the entire retail ecosystem in the state and employment of millions, he said. “Nearly 60-70% of costs are fixed. This, along with low margins, leaves businesses with limited flexibility. Rents and salaries to employees make a large part of this cost. Working capital is high, and as most of this is borrowed capital, retailers are finding themselves in a deep liquidity crisis,” he added.

For restaurants in Maharashtra, dine-in will be prohibited till April 30. Takeaway orders, parcels and home-delivery services will be allowed between 7 am and 8 pm on weekdays. On weekends, only home delivery will be allowed between 7 am and 8 pm, according to the April 4 order.

Restaurants said they may send staff home for a month as they’re only allowed to service takeaways and deliveries. They are also considering taking on the added cost of vaccinating staff. “A lot of the front-end staff will be asked to go home. Putting curbs on delivery till 8pm also is a major blow to business as a lot of people don’t order dinner before 8 pm. This could easily lead to dinner-time orders dropping 50%,” said Pranav Rungta, chapter head, Mumbai at the National Restaurant Association of India.

Mall executives said they are closely watching how the situation develops. New guidelines will have a devastating impact on retailers, especially small franchisees with individual stores. “It is difficult to curtail costs for a short period”, said Rajneesh Mahajan, CEO of Inorbit Malls. On rentals, he said the industry will have to collaborate.

Cinemas are also shut in Mumbai for the rest of the month with a 50% cap announced for Karnataka and closure of theatres in Rajasthan on weekends. In April, box office collections will be lower by 200 crore as big films defer releases, said film producer, exhibition and trade expert Girish Johar.

Kunal Sawhney, senior vice-president at Carnival Cinemas, is also banking on south India to help balance losses from the north. “The hope is that the curbs, along with the ongoing vaccination drive, will result in a quick decline in cases.”

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