Navigating Through Uncharted Territory In The Times of Corona Pandemic

Uncharted Territory | Supply Chain Finance

Can the World find India this time around?

Social distancing. Two words that have been repeated by every global leader that has found themselves in charge of things during a global pandemic.

All our industries had evolved to bring people together physically, socially and through value exchanges. They’ve all been asked to stop, overnight. A failure of imagination to prophesize a global standstill is likely going to lead to an economic crisis that ranges from the best-case scenario of the Sub-Prime Crisis to the worst-case scenario of the Great Depression, depending on whom you ask.

It started with China, the world’s leading manufacturer – a title that they must now fight to retain. The epidemic disrupted supply chains at every level. The lesson here is for companies to factor in mitigation strategies into decision making. Companies must find more than one pathway to transport commodities to markets. Short term costs will have to be weighed equally against long term stability. Raghuram Rajan said,

“The world moved from extreme confidence to extreme panic, all within a week.”

Raghuram Rajan

This will force companies to rethink their overseas production facilities and supply chains.

Ruchir Sharma, the head of Emerging Markets and Chief Global Strategist at Morgan Stanley Investment, has also warned of a looming global economic crisis in wake of the Coronavirus pandemic.

“The early estimates suggest that the global economy will contract by about 5 per cent.”

Ruchir Sharma

The last time the global economy contracted was in the 2008-09 global recession. There have been about 7 global recessions over the last century. And it is very rare for the global economy to contract as such. Analysts comparing Covid19 to pandemics of the past will have to factor in the current production landscape, the increased outsourcing and an increase in alarmists through social messaging platforms.

The high rate of infection and limited healthcare capacities have caused Governments to enforce work from home (WFH) policies to all business barring essential services. WFH comes with its own challenges of low efficiency, communication hurdles and low morale.

But necessity is the mother of all invention, with supply chain financing having been born out of the Sub-prime crisis in 2008. The recognition of a failure of the existing financial institutions to solve for working capital availability led to an innovative solution. One that will protect enterprises against economic shocks just like this one.

In India, one of the industries that have been exempt from WFH is eCommerce. We often take for granted that the journey from ‘Add to Cart’ to the final delivery is a painstaking one. It involves warehouse and logistics facilities and services. Wholesalers, along with their vendors and third-party delivery partners who are part of the supply and logistic chain eco-system. While they are all parts of the supply chain machinery, the financing is the oil that keeps the engine running. Payment delays cripple smaller vendors in times like these as it brings operations to a complete halt. Supply chain financing platforms ensure that immediate payments can be triggered to seamlessly transition to Business As Usual (BAU) in times even as unusual as this. These eCommerce players have been cited as the lifeblood of cities in lockdowns. And while eCommerce is an outlier in the pandemic, several businesses in other industries are struggling to manage their cash flow with revenues coming to a grinding hault. Players like CredAble will help assuage a lot of the anxieties faced by companies when it comes to paying off their workforces. While utilities, interest on loans and rental agreements are being waivered by Governments in the west. India hasn’t made any such announcements yet, despite a large bailout seeming almost inevitable.

Universal Basic Income is an idea that’s being implemented in the west to provide relief to their citizens and stimulate national economies. However, the Indian Government will be unable to do so without heavily leaning on the Reserve Bank of India. This would likely lead to a devaluation of the Indian Rupee once the pandemic runs its course. But until then, Supply Chain Financing proves to be one of the checks and balances in the economy for times like these.

In this rapidly developing crisis, however, there is a silver lining for the Indian economy. We will find ourselves in a battle for the spot left behind by China in the global value chain. Companies across the board will be looking to spread its risk, and while it’s unlikely for any one country to dominate the way China once did, it is still an opportunity for growth that simply must be embraced.

India will need to overcome two major hurdles to do so, it’s logistical inefficiencies (currently its logistical costs are twice of Bangladesh and triple that of China) along with its limited access to finance.

The Indian Government’s ability to overcome this pandemic will be the first step in sending a statement to the rest of the world about its capabilities. So far, the Government in India has called for social distancing and a lock-down, however, it might not really be a solution that factors in India’s densely populated cities, housing and joint familial structures. Time will tell.