Current economic situation – way forward

  • The economic slowdown presents a serious challenge to the Modi government as it sets a target of making India a $5 trillion economy in five years. Lets start from the worst hit Auto sector to the real estate sector, number of unsold homes have increased. Whereas, The Reserve Bank of India (RBI) said it stands ready to safeguard the country’s banking system from financial and market risks stemming from the spread of Covid-19, citing expectations of “coordinated policy action” by central banks around the world amid threats to global demand and currency movements.

    A shutdown that instantly prevented the vendors to deliver morning newspapers at their doorsteps of buyers and the rumour that the paper itself can carry the novel coronavirus forced many publishers to drastically reduce their circulation figure.

  • However, managements of The Times of India, The Indian Express, The Hindu, Hindustan Times, Mid-Day etc made it clear that even though no physical editions would hit the stands on account of the new-found restrictions their newspapers would be thoroughly available in the internet. Many media houses started sharing the PDF version of
    complete newspaper free of cost. Acclaimed news magazine also suspended its print edition pushing its digital edition available to nurture the need of readers.
  • When we see so many things are happening around us ,how we would prepare for the next:

Was thinking about current economic situation and it’s consequences from last several days.

My summarised thoughts are:

We may enter into an economic slowdown globally and the exception is likely to be India and China with ~2% GDP growth in 2020 which, of course, is way below ~5 – 8% in the past several years.

Way of life going forward will be:

*What will change during the slow down:*

1. Spend on luxury will come down drastically
2. Long-term / Capital expenditure such will be almost cut to nil
3. Lifestyle expenditure such as salary, rent, entertainment, travel will be minimised
4. Working capital will be under tremendous pressure.
5. People will shy away from taking credit/mortgages unless absolutely necessary 6. Personalised services like hotel, restaurant will take longer time to recover 7. Socialised and event based business models like malls, cinemas, event halls will be a hard hit
8. New innovative business models around tech and AI will evolve
9. Businesses around cleanliness, waste management, medicines and affordable healthcare will grow

*What will NOT change during the slow down:*

1. People consumption on essentials will continue
2. Rise in Investment on ideas / technology solutions that will improve efficiency 3. Businesses with healthy cash flow and minimum or no leverage will thrive
4. Rise in investment on spiritual / self-learning practices
5. Value for money products / services will shine

*What you should do as an individual:*

1. Hold back any luxury / high risk investments where visibility of returns is difficult to predict
2. Minimise expenditure on the routine stuff – keep a watch on your lifestyle spend – ask the question, is it really necessary!
3. Develop yourself on improving competency and skills to become more sharper and more efficient
4. Share the financial situation with your family members and educate them on the family financial position and the plans to improve
5. Invest – yes invest in right business models. Take risks based on thorough research. This is not the time to follow tips.
6. Spend more time with yourself. Yes, spend more time on things you missed during the race. Be it family, study, music, spirituality …

*What you should do as an Entrepreneur:*

1. Take care of your employees. Be reasonable and transparent with them
2. Be in touch with your customers and suppliers, even more than before. Hear them well
3. Use the slow down to improve your processes
4. Invest in technology / systems that will accelerate your reach in adding value to your customers
5. Be frugal in working capital decisions and operating expenditure
6. Capital expenditure to be kept on hold unless there is clear visibility on the associated returns
7. This may be a time to restrategise. All your competitors are down. Good time to catch up with large players if you strategise right.

Nothing is constant

We are in an ever changing world and even this situation will change. Economy will shine again. Lets us get smarter by helping ourselves and be ready when economy bounces back.

Authored by :Manish Sheth, MD & CEO,JM Financial Home Loans Ltd