The First Economic shock wave was undoubtedly the Covid-19 Pandemic, but the world will have to face the second economic shock wave as the demand tumbles. While retrospecting recent history, it is not very difficult to find instances of business failures and prosaic thoughts of Financial Crisis 2008, The Great Depression of 1929, and maybe even the 2016 Indian Demonetization will come to mind. Most of the business failures were restricted towards specific industries in common historical events. The current pandemic has surged demand for one of the most essential components of the business world that is healthcare industry but in turn it has immensely reduced the cash flow and profits for manufacturing, retail, service, tourism and all other relevant sectors of the world.
India being a labor intensive and technologically backward country might face a thunderstorm of business risks in the future. More than 240,000 Chinese companies recently filed bankruptcy cases and there is huge possibility of insolvency risks in India if the lockdown is extended further. This is not just prevalent for major growing businesses but also for small scale businesses we see in our normal lives. Amidst the prevailing income inequality, small scale business owners will be affected the most.The government is definitely coming up with financial packages to protect these businesses but will these business owners take the risk of going forward with the upcoming schemes?
The current Financial Market can be a very good opportunity for investors to buy in diversified shares at a very low price because the odds of surging stock prices and inflation in a few years is quite large. Reserve Bank of India plans to issue sovereign gold bond on the 20th April, to stimulate the economy and the borrowing program, in the form of promissory notes. The problem of popularity arises as we Indians look for tangible goods; however “Gold is always considered a Good investment”. Disputing with this thought, gold has its own backlog that is its volatility. Financial Analysts might not be interested in advising for large quantities of consumption but despite this gold has been one of the most reliable assets. Status Quo Bias is a prevalent behavioral instinct among humans wherein they tend to prefer things in their current status, that is any change from the current reference point is considered as a loss. The possibility of this bias arising among common individuals is quite high because of concentrated financial awareness and this will eventually affect their business in the long run.
Insurance Companies are commonly regarded as safe keepers and we, as the insured, often tend to take the insurers for granted. During the current economic scenarios, businesses are now revisiting clauses in the insurance contracts. Force Majeure is a term used to define uncontrollable and unanticipated risks to a business and thus, accounts for the risk of losses incurred during non-performance of business during these situations. The problem is that this clause defines specific circumstances which qualify as force majeure, and majorly these include acts of God and loss of property. So, will Insurance companies provide for claims asked by the companies? Well, resistance will definitely prevail as there is overall economic recession. On the other hand, there are organizations such as The All-England Lawn Tennis Club which inserted a clause namely The Pandemic Insurance after SARS 2003 which helped them claim approximately 124 million dollars. IRDAI plans to regulate the losses incurred by Indian Businesses, but this might lead to spread of regulatory fear among future newcomers. Did you know that Insurance companies often tend to be providers of income inequality in an economy?
There is increasing concern for fraud risks both externally and internally. Few key traits that provide evidence include criminal gangs updating themselves through larceny, loss of transportation infrastructure, WFH programs causing emerging temptation for data misuse, reduced job security, unapproved payment of invoices, reduced employees and cyber-attacks. After normalization of the situation, the regulators will not only temporarily reduce financial boundaries but will also promote competition which will indirectly affect business corporations.
The Covid-19 pandemic is a human tragedy and the only lesson we can learn from this is,
“Never restart a journey and use the same road that failed you before.”
? Dennis E. Adonis
By Muskan Bagrodia
Literary and Statistical Sources: MOSPI, World Economic Forum, Money Control