China has been one of the world’s leading economic powers for almost two millennia. Until the late 1700s, it accounted for approximately one-quarter of the global GDP (Gross Domestic Product). By the time the industrial revolution was beginning in Great Britain by 1820, China was accounting for approximately one-third of the global GDP. These numbers factually reflected that China’s GDP at the time was six times as large as that of Great Britain.
Under the leadership of Deng Xiaoping, the Chinese government began introducing economic reforms in the year 1978 which resulted in the country becoming the fastest-growing major economy in the world. China registered an average growth rate of 10% over the next 30 years. Its sustained growth rate could be attributable to its export relationships, its large-scale manufacturing sector, and the country’s low-wage workers.
As one of the largest economies in the world, the country was successful in avoiding the global economic downturn due to the Covid-19 pandemic. However, in the year 2022, it posted one of its worst economic performances in decades because of the pandemic.
As of the year 2020, the national debt of the People’s Republic of China stood at an approximate amount of USD 7 trillion. This amount was equivalent to around 45% of the country’s GDP. The off-balance sheet debt of Chinese local governments, as per the Standard & Poor’s Global rating, was amounting to approximately USD 5.8 trillion while the International Monetary Fund said that the debt owned by the state-owned industrial firms was another 74% of the total country’s GDP.
According to Forbes, at the last measure, China’s debt of all kinds – public and private and in all sectors of the economy – amounted to a staggering USD 51.9 trillion, which is almost three times the size of China’s economy. Since the time Beijing first began tracking such statistics, twenty-seven years ago, this amount is the highest level of debt recorded.
The Beijing-backed National Institution for Finance and Development has stated that local authorities are set to issue a new debt amount of approximately USD 570 billion for the next year. This precarious situation of China is further highlighted by its comparison of relative debt to the United States. By mid of the year 2022, China’s national debt was 40% higher than that of the US.
National debt refers to the outstanding financial obligation of a particular country and what the central government owes to its creditors. The amount of the national debt of a country represents the past annual budget deficits. It is incurred especially to maintain government services during a recession when tax revenues decrease and government expenditure increases. Government debt is also created to cover costs from major shocks like a war, a public health emergency, or even a severe economic downturn.
Reasons for China’s Increasing National Debt
In previous years, China had successfully managed to keep its national debt lower than the US. This was possible due to the policies that were introduced by the state. The national debt of China had usually been held by domestic institutional investors, in particular state-owned banks. The investment and lending practices of these banks supported government policies like issuing bonds for infrastructure investments and insurance companies.
However, in the last few years, the country has seen a consistently increasing national debt that has included government spending on development projects and slowing economic growth. The global financial crisis in the face of the covid-19 pandemic caused the state to inject more credit into government-owned enterprises. At the same time, Chinese authorities eased the way for companies to secure loans to restart the economy. This further increased the burden of debt on the country’s economy.
China’s Local Government Debt Crisis Explained
Impact of High National Debt on the Chinese Economy
China’s financial system is not entirely transparent. This is given rise to concerns about the amount of actual debt that is being held by local governments and state-owned enterprises. Other related concerns are also highlighted like the risks associated with high-level borrowing and the overall debt of the country. Having said that, China is hopeful of ambitious economic growth due to its heavy investment in infrastructure projects. The economy has also taken proactive steps towards a consumption-driven growth model, although, it is yet to yield results.
Despite the shadow that is cast on China due to its growing national debt, analysts remain optimistic about the country’s long-term prospects. They remain positive that although this will slow China’s ascent, it won’t derail the economy entirely.
Conclusion
The debt situation of China is set to grow further. There are two notable and significant issues impacting it. One is its demographic challenge with over 60% of the country’s population either retired or nearing retirement age. The second big concern is the country’s shortage of young workers which supports a growing aging population due to its decades-long one-child policy. This situation within the country is likely to continue for the foreseeable future and the country will rely heavily on debt to fulfill its social security pension obligations.
FAQs
What is the current debt of China?
As of the year 2020, the national debt of the People’s Republic of China stood at an approximate amount of USD 7 trillion.
What is National Debt?
National debt refers to the outstanding financial obligation of a particular country and what the central government owes to its creditors. The amount of the national debt of a country represents the past annual budget deficits.
Economics has always been an important thing for a country. You may not like the subject in your school but it is something that is super real in nature. It is basically the allocation of resources to achieve the most optimum efficiency. As the number of people grows in a country, so does the responsibility and the load to be more active and unbiased in every sphere of allocation of resources. Good allocation of resources is important because resources are finite.
If not managed well, the whole economy can just crash, however big or small the economy is. This is what we are reminded of every now and then. This unusual year brought up the news of a country getting economically unstable. The country is Sri Lanka and it is in a really serious economic condition. The people of Sri Lanka are facing extreme situations associated with their economy. This article focuses right on the same topic.
Read this article to know about what is happening in Sri Lanka and what the world is saying about it, how the country plans to get out of this tight phase and much more. Here we go,
A Little Brief About the Sri Lanka Economic Crisis
Recently, the news broke out about Sri Lanka from which we came to know that the country to the south of India is facing a financial crisis and there are fears of bankruptcy. News resources reported that Sri Lanka is in a super tight place right now and it might have extreme economical conditions in the near future.
The Sri Lankan foreign reserves have hit a record low where the commercial banks are failing to secure “dollars to finance imports of food, fuel and medicines”, as says Deccan Herald. All of these started with the outbreak of the COVID-19 pandemic, which devastated the country’s tourism sector, a pivotal industry of the Sri Lankan revenue, and also reduced the foreign workers’ remittances.
To save the country, the Sri Lankan government announced a broad import ban in March 2020. However, this backfired in the form of shooting the food prices up by 25%, as per the reports of February 2022, and has contributed to an overall inflation of 17.5%. Furthermore, the country is also facing 5-hour electricity blackouts each day because the thermal generators have run out of fuel. According to the reports, the country is still battling its $51 billion sovereign debt.
It has been heard that he Sri Lankan government had received a $1.2 billion economic relief package from India for a cure. This economic relief package, as announced by the government on January 4, 2022, amidst the ongoing forex crises of the country, ensures that the Sri Lankan government is optimistic about their future. They want to communicate that the country will not default on its international debt.
The Current Situation in Sri Lanka Due to the Crisis
The GDP of Sri Lanka over the years
Sri Lanka’s external reserves were dropped severely in November of 2021. The fall marked the external reserves to $1.6 billion. This fall triggered alarm in most of the domains and quarters of the country. Concerned people warned about this in the government. Economists and Think tank’s warned that this fall in foreign reserves will mean a sovereign default in the future.
American credit rating organisation ‘Fitch’, after the event in Sri Lanka downgraded the nation’s rating to CC. A CC rating is the lowest rating just before the defaulter tag. It is to be noted that Sri Lanka had a piling pile of feigning debt over the last few years. However, the island has never defaulted on any of the foreign debts until now.
Fitch Ratings of Sri Lanka
This downtrend in the year 2020 is seen as the record breaker for Sri Lanka. The current situation is seen as a super meltdown and has impacted the whole island. Living costs are rising impeccably, food shortages are forecasted up this year and as per the reports, Sri Lanka will likely default on the debt that it has accumulated.
Having said about the economic crisis and the depleting foreign reserves, there are many issues that Sri Lanka is facing right now. Inflation is seen at an all-time high in the country and the basic living conditions are getting costlier. Food prices are skyrocketing and its treasuries are shrinking.
The economic crisis that the country is facing right now is inhumane and the hole is too deep to get out from. The country appears to be staring at a human crisis that will hurt not only the growth rate in the pandemic era but the basic sustainability index of the country.
According to World Bank estimates, 5 lakh people in Sri Lanka have fallen below the poverty line since the pandemic struck, which it described as a “huge setback equivalent to five years’ worth of progress”.
The World Bank has estimated that about 5 lakh people have fallen below the poverty line and this trend started during the Covid 19 pandemic. This setback was so deepening that it took away Sri Lanka’s five years worth of growth with itself. This is a huge shock for the economy of Sri Lanka and the people who make up the economy.
In further reports, it is said that the country’s economy has contracted by 1.5%, just by the end of the third quarter of 2021. With the new year 2022, it is not going to be easy for Sri Lanka to sustain itself as there are real concerns about the country going bankrupt.
The government, however, said Tuesday the country will not default on its international debt as it announced a USD 1.2 billion economic relief package.
Finance Minister Basil Rajapaksa said Sri Lanka would duly pay the international sovereign bond of USD 500 million due in a fortnight, a PTI report said.
Sri Lanka, which is an Island to the south of India, is a great tourist spot. It is estimated that tourism revenue makes up about 10% of the island’s GDP (Gross domestic product). This was the usual rate in the island country.
With the onset of the Covid19 pandemic, this rate was badly hit and the tourism sector came to a sudden halt. This had really a cascading effect on the earnings of the nation. However, every other major tourist destination faced this issue but the effect was real. Magnified on Sri Lanka as the tourism there makes up a good chunk of the GDP.
While the halting of tourists was a good attack on the economy, there were some other reasons as well. The other ascertained reasons for the fall would include, Heavy Expenditures. The president of Sri Lanka, Gotabaya Rajapaksa did some hefty expenditures during the year.
Gotabaya Rajapaksa – President of Sri Lanka
His government tried to cut taxes from people that impacted government revenues. More and more spending led to less and depleting foreign reserves and thus the reserves hit a rock bottom. The country is very high on loans and grants and has China as a major debt partner. The Guardian recently reported that Sri Lanka has massive debt repayments to China alone.
Sri Lankan rupee (Currency of the island) crashed too. This is basically termed as ‘Inflation’. Inflation reached a record high in Sri Lanka, and is rising continually, leading to a spike in food prices, which was the reason for worry for the common citizens of the country. Reacting to the rise in inflation, President Rajapaksa announced an economic emergency in August 2021, just a couple of months before the foreign reserves crash. This emergency was implemented to control the situation and contain it. The effect was to lessen the hoarding of items by people in their homes, which could lead to more severe shortages.
Four months went by and as the inflation rose more, basic goods became unaffordable for the general public. Not just that, it has been reported that even well off or socially rich people are having trouble affording basic needs and wants. These many months, the citizens of Sri Lanka faced a tough time to make both ends meet.
The government had appointed a former army general as commissioner of essential services, giving him the power to seize food stocks hoarded by traders and retailers, and ensure essential items were sold at prices set by the government, but little was done on the ground to lift people out of their misery, the Guardian report said.
What Sri Lanka is facing right now is inhuman and horrendous. The economic conditions there have seen very tight phases but this phase is the most horrific. Adding to that, this is when the whole world is facing a global pandemic which could lead to any ruins. This has broadened the possibilities of Sri Lanka going bankrupt. After witnessing a drop of 70% in foreign exchange reserves during the past 2 years, the government of Lanka and the people of the island country, are experiencing a currency devaluation and are looking forward for help from the global lenders. According to the latest news dated March 28, 2022, Sri Lanka, which is a country for 22 million people, is struggling to pay for essential imports Let us see what the numbers and opinions about the country say.
This is not a certain statement but the probability of this country going bankrupt has never been this high. It has been reported that the country is super deep in debts and owes tremendous amounts to other counters. Here we are presenting a few stats that prove the misery of Sri Lanka.
Sri Lanka owes an amount that is more than $5 billion to China. This is probably the biggest amount of debt that the country has ever taken. The country is paying the China debt in instalments.
Not only that, but Sri Lanka is also a debtor to Beijing for $1 billion, which it took to overcome the previous acute crisis. Along with the major countries and regions that Sri Lanka owes money to, it is reported that there are many private and government entities that it owes money to. This situation of enormous debts and depreciating foreign reserves can be a ‘Checkmate’ situation for the republic of the nation.
“We have high debt from three countries — China, Japan and India. The total outstanding for this year would be USD 6.9 billion,” FM Rajapaksa, the younger brother of President Rajapaksa and Prime Minister Mahinda Rajapaksa, was quoted as saying in the PTI report.
The finance minister of Sri Lanka openly announced the amount they owe to countries. He said that Sri Lanka owes a sum total of about $7 billion to countries like China, Japan and even its neighbour, India.
Sri Lanka’s huge foreign debt burden is one of the main reasons for its economic crisis. As of November, foreign currency reserves available with the country were just $1.58 billion, down from $7.5 billion when Rajapaksa became the president in 2019, the report said.
National debt of Sri Lanka
Amid the falling environment, the opposition party in Sri Lanka also took a dig. An opposition member of parliament, Harsha de Silva (who is also an economist) told parliament that foreign reserves would be in the negative if the rate of decline continues. Moreover, the Sri Lankan newspaper ‘Daily mirror’ quoted “The nation will go totally bankrupt”.
Opposition MP Harsha de Silva, who is also an economist, told Parliament in December that the country’s foreign currency reserves would be minus $437m by January, and the total foreign debt services would be $4.8 billion between February and October 2022. “The nation will be totally bankrupt,” Sri Lankan newspaper Daily Mirror quoted him as saying.
De Silva said he was not trying to scare anyone but it was a reality that “all imports will come to a halt, the entire IT system will be shut down including the google map as we will not be able to pay for it”.
The government has, however, always made an optimistic approach and has insisted that it can meet the obligations.
Minister Ramesh Pathirana has said they would try to settle past oil debts with Iran by paying them with tea. Sri Lanka plans to send $5m worth of tea every month to Iran to save “much needed currency”, The Guardian reported.
Ministers are worried about what the future may look like and all they want is to minimise the damage.
Central Bank Governor Ajith Nivard Cabraal has also said that Sri Lanka would be able to pay off its debts “seamlessly”.
Former central bank deputy governor WA Wijewardena, however, told The Guardian that there were high chances that the country would default on repayments, and that would have catastrophic economic consequences.
“When the economic crisis deepens beyond redemption, it is inevitable that the country will have a financial crisis too. Both will reduce food security by lowering production and failing to import due to foreign exchange scarcities. At that point, it will be a humanitarian crisis,” he warned.
The chances of Sri Lanka defaulting on loans and debts have never been high. However, when we dug up information about the finance department in the government and what the finance minister has to say about this, we found that they have a plan.
The plan is a new and strong relief package that will try to rebalance the economic imbalance. The debt can be looked at as a secondary objective but for now, the thing that they would like to focus on is the foundation of the economy. The employees, pensioners and differently-abled soldiers are the first-hand people who will get the benefits.
The finance minister, meanwhile, said Tuesday they have a plan in place. He said the new $1.2 billion (229 billion Sri Lankan rupees) economic relief package includes payment of a special monthly allowance of Rs 5,000 to 1.5 million government employees, pensioners and differently-abled soldiers from January 2022.
This is by far the response of the Sri Lankan government to the crisis that the nation is facing. Let us now look at some of the major factors on why and how the economy at Sri Lanka sunk this much, the first one is the tourism setback.
Reasons Behind the Economic Crisis in Sri Lanka
Tourism in Sri Lanka and turmoil
The impact of the pandemic was huge on Sri Lanka. Covid 19 has stopped any sort of travel and tourism in the country for a long time now. According to the reports of the world travel and tourism council, nearly 2 lakh people have lost jobs in the travel industry since the pandemic began and globalised.
The loss of foreign revenue is huge too. According to the Hindu report last year, forex reserves have dropped from $7.5 billion to $2.8 billion, which is a steep decline and is obviously not healthy at all. The loss of foreign revenue from the sector has been substantial.
Adding to the above-mentioned deficits, the Sri Lankan rupee is depreciating too. This is known as inflation and it is very high in Sri Lanka right now. Basic livelihood items such as food items’ prices have risen manifold and people have to face difficulties to meet both ends. The nation, for now, has to depend heavily on imports.
Food Shortage in Sri Lanka
Photos of Lines and queues of people can be seen all over the news from Sri Lanka. These are the lines of people who are in a queue to buy home essentials, like food items. Prices of such basic items have risen enormously and are out of reach for many. Prices of bread, rice, wheat, sugar etc., have all risen several times.
People standing in Queue in Sri Lanka
It has never been hard for poor and middle-class people to buy items like these. The daily wage earners especially are affected the most.
Quoting a man who works as a chauffeur in Colombo, The Guardian report said he has now taken up a second job and his family now eats two meals every day, and not three. He said his village grocer now makes ten 100g packets out of a 1kg milk powder packet because no one can afford to buy the full packet.
The pandemic has just more severely affected those in the nation. The government’s efforts to make Sri Lanka ‘100% organic’ is at a loss. Last year, The Hindu reported that the country is planning to cut the use of chemical fertilisers to almost zero. To which farmers opposed and replied that this will affect food production. Pandemic made the food situation of Sri Lanka more severe.
“The government has no money for fertiliser subsidies. Many of us farmers are reluctant to invest money because we don’t know if we will make any profit,” A farmer was quoted as saying.
At the time of crisis, everyone hopes high from the government and the people of Sri Lanka are hoping the same from the government there. Speaking at the parliament in December 2020, MP, Harsha de Silva said that the only solution to the crisis is to seek assistance from the IMF(International Monetary Fund). He said homegrown solutions would not help, and only the IMF can revive the country’s economy.
The president’s office did not have an official notice or announcement for the citizens and the central bank is appealing for the foreign currency. The government of Sri Lanka is hustling to make things better for the people but it is just too hard. They are trying to stabilise the situation and try to help poor and sick people first and apply that others have to sacrifice a little.
The central bank had earlier last year prohibited traders from trading more than 200 Sri Lankan rupees for a single US dollar, they also have stopped traders from entering into forwarding currency contracts. The government has since been taking temporary relief measures to ease the situation.
Early December, Finance Minister from Sri Lanka Basil Rajapaksa visited neighbour India and commenced talks with his Indian counterpart Nirmala Sitharaman and India’s External Affairs Minister S Jaishankar to which they were thinking to take forward.
Basil Rajapaksa with Nirmala Sitharaman
The talks included a total of $1.9 billion of assistance for the country and besides that, a $500 million credit line for fuel and $400 million swap was discussed too. Similar talks were also held with China and Bangladesh.
Of all the reliefs and grants, Rajapaksa, (The President) assured that the relief package would not contribute to further inflation and that there won’t be any new taxes.
India’s Relations with Sri Lanka and the Assistance
India has always been a healthy and supportive friend to its neighbours. One of the neighbours of the Indian subcontinent is Sri Lanka. Speaking of help and assistance from India, the news is flooded with nice gestures from the Indian government for the Sri Lankan government. Let us have a look:
India assured Sri Lanka of its support to ally over these “difficult times” even as it welcomed the Trincomalee tank farms project saying it will augment bilateral energy security.
External Affairs Ministry Spokesperson Arindam Bagchi, when asked at a media briefing on the possibility of India extending the credit line to help Sri Lanka overcome its economic crisis, said it has always stood by the people of that country.
It is a great hope to notice how countries are helping each other in such times. India has agreed to mostly increase the credit line and time for repayments for Sri Lanka. Decisions like these will help foster friendly relationships with neighbouring countries.
After a telephonic conversation with his Sri Lankan counterpart, External Affairs Minister S Jaishankar said India will support Sri Lanka in “these difficult times”. “Greeted FM G.L. Peiris of Sri Lanka in the New Year. A reliable friend, India will support Sri Lanka in these difficult times. Agreed to remain in close touch,” Jaishankar tweeted.
“We have seen reports that the Sri Lankan Cabinet has approved the development of the Trincomalee tank farms. Energy security is an important area of our bilateral cooperation with Sri Lanka,” he said supporting relations with the neighbour.
The Sri Lankan government replied that after analysing the three existing agreements with the Indian government about the strategic Trincomalee oil tank complex, usually known as the Trinco oil tank farm, the two countries have reached an agreement to implement a joint development project to make
On the query on extending the credit line time by India, Bagchi referred to the visit to New Delhi by Sri Lankan Finance Minister Basil Rajapaksa last month.
“He briefed the Indian side on the economic situation in Sri Lanka and his government’s approach in addressing these challenges. India has always stood by the Sri Lankan people and Sri Lanka is an important part of our neighbourhood first policy,” Bagchi said relying on support to the island.
The above dialogues and discussion proved that India was ready to help Sri Lanka. Therefore, after mutual agreements and deals that were beneficial for both the countries, India extended a relief fund of $1 billion to the present Sri Lankan government. This was a good move indeed and helped Lanka in its time of need. However, after the March relief extended by India, Sri Lanka is again seeking for an additional credit line of $1.5 billion on top of the earlier funds. This credit line will also be met by India, which will be used by Sri Lanka for the import of its essential goods like rice, flour, sugar, pulses, medicines and more, as far as the Reuters reports go.
The help, extended by India, will undoubtedly be beneficial for the economically devastated Lanka and will further help in bettering the relations between the countries. India always proves that it is very much ready to help out everyone and set an example of moral duties for onlookers.
It is not that the nation of Sri Lanka has found this issue very sudden, but that the country is experiencing it for quite some time now, which is more worrying. It has been two years since the pandemic started and globalised but the foreign reserves at Sri Lanka were depleting long back and it only shows some leniency. The tolerance of the Sri Lankan government can be detained in the present crisis as a reason for the same.
India, as a supporting country, has always been together with other countries who are in need. It plans to do the same this year too, even when the shadows of the pandemic are hovering above still and India itself needs support. It is time that every country follows the same rules and morals so that the world can be a happier place to live in. The pandemic has massively accelerated empathy in the world and whatever lies ahead, we can feel a sense of togetherness.
FAQs
Why is there an economic crisis in Sri Lanka?
The economic crisis that Sri Lanka is currently undergoing points to a severe depreciation of the country’s foreign exchange reserves. The crisis started back in 2019, when there was a massive dip in the country’s overall produce, which declined by 50%. Then the Covid19 pandemic struck, which made it insanely difficult for the country to recover, followed by a ban on import on March 2020. Now, the struggle of the country is real, with debts piling in and the government requesting relief funds from the other countries to import the essential goods.
How much does Sri Lanka owe the world?
The national debt of Sri Lanka is around $51 billion, as of March 2022.
Is Sri Lanka in an economic crisis?
Yes, Sri Lanka is facing its worst economic and debt crisis, which started in 2019 and is continuing even now!
Crisis management is a method that can be used for two purposes: as a way to help the contractor deal with a crucial problem that could cause severe losses; and also as a form of prevention against any type of crisis, preparing the company to deal with this situation.
In other words, this methodology brings together a set of strategies and actions aimed at minimizing, reducing, or reversing the possible consequences of these problems, which can range from economic to those related to the organization’s image.
But after all, what exactly characterizes a crisis?
According to a communication and crisis expert, this concept describes any serious event that breaks the normality of a company or causes an extremely formal impact, causing serious damage and even affecting people’s safety and lives.
Companies must always be prepared to give a quick and effective response in these situations, and for that, the first step is to know the main types of crisis that can affect your business.
Every company can be affected in different ways, there is no single source and in each of them, the answer must be as assertive as possible. Therefore, it is important to know the main cause of the crisis in the corporate world so that you can adequately prepare for each one of them.
Check out this brief description of the main causes of the crisis:
Economic or Financial:
One of the most common types to be seen, and occurs is when the company suffers a significant reduction in its business. When there’s more supply than demand, your profitability and revenue decline, and your cash flow or working capital isn’t enough to balance the bills.
Structural failures:
Structural failures are most often seen in large companies such as factories and construction companies. They are characterized by the failure of equipment or structures. In more serious cases, damage to families can result in the loss of life.
Rumours of sabotage:
Many rumours or accusations spread by competitors or even dissatisfied customers can cause significant crises in organizations, especially when spread quickly through technology and social media.
Reputation:
When internal and confidential information leaks to society, every company is at great risk of facing a severe crisis, especially if this data involves illegal issues about its operation.
Natural disasters:
Natural disasters like earthquakes, storms, floods can damage your business, causing operational and, consequently, financial problems.
With these examples, we can see how there is a great diversity of causes that can lead to a business crisis, whether internal or external. But don’t worry, we will give you fundamental tips, later on, to help you with this management.
How to Manage a Crisis in a Company?
There is no denying the importance of having good crisis management, but the big question that makes this process difficult for many professionals is: where to start?
Assertive crisis management must be organized and prepared with great care, which is why we have created a step-by-step guide that can help your company with this task. Check out:
1. Map the Company’s Risks
For your company to have good crisis management, it is necessary to carry out a complete mapping of all the company’s risks.
Raise the entire history of the organization and analyze the main issues that could affect it. It is important to simulate these possible scenarios to have a better understanding of what could happen and, based on that, devise the best strategies for each situation.
2. Create a Crisis Committee
Once all the risks that could affect your business are mapped and understood, the second step is to establish who will be responsible for this crisis management.
The leaders and managers should be in front of this command-line process, but beyond them, you have to define representatives from each sector of the company, who will also be responsible for dealing with problems that reach their respective areas.
After all, the crisis can affect the organization as much as a specific sector, so it is important to have an employee responsible for this task in each team.
3. Strategy Elaboration
Strategy Elaboration
Then, it is time to devise the strategies to be used in each crisis.
Establish the actions that will be taken, train the spokespersons responsible for each team, and analyze how information about the event will be transmitted, both internally to all employees and the press and the public.
With these actions, your company will be better prepared to deal with crises and solve the problem in the best way possible. Besides them, other tips are fundamental for this process and must also be followed to avoid mistakes that could compromise this management.
4. A Contingency Plan to Manage a Crisis
No company wants to face a crisis, but as we mentioned above, we are often subject to unexpected situations that will drastically affect our daily lives.
Therefore, all companies must be ready to deal with these unexpected events, not only through the strategies we mentioned above but also through a contingency plan.
Typically, it is based on risks that have already been identified and decided upon as situations that can critically impact the company, to maintain or restore the organization’s critical operations.
As an example, we can mention the coronavirus pandemic, which impacted and changed the routines of several organizations, forcing them to quickly adapt to this new scenario to ensure that their business continued to function.
In situations like this, the contingency plan must be activated so that the company can maintain its operations. At this point, all teams must be aware of the actions that will be taken to resolve the crisis and work together to put them into practice.
Good communication is essential not only for this plan but for all crisis management so that everyone is aligned on the procedures that will be taken. In addition, the organization’s response must be as quick as possible, as the longer it takes, the more difficulties can arise in solving the problem.
Finally, it is noteworthy that this process must be closely monitored by leaders or managers so that they can be sure that the necessary actions are being taken and that the desired results are being achieved.
5. The Importance of Internal Communication in Crisis Management
Internal Communication
In times of crisis, a small flaw, miscommunication or rumours can disrupt this entire process, and even bring serious consequences. Therefore, the first item that should not be dispensed with is internal communication.
In this process, HR must be concerned with being transparent and objective about the procedures being taken, and always be available for any queries that may arise.
Maintaining good internal communication will bring greater security to those involved, ensuring that employees are always aware of the organization’s position at these times, feel at ease, and know what is being done to fight the crisis.
How can HR Help in Crisis Management?
HR is one of the most important departments in the corporate world. As well as dealing with bureaucratic issues, the contractor is also responsible for a broad range of management that involves the welfare of employees. Therefore, in times of crisis, the professionals in this department are extremely important to contribute to the management’s focus on the internal public, that is, in establishing all the measures that will be aimed at the company’s employees.
These actions provide high-performance management, which will not only increase the teams’ performance but also contribute to greater motivation and, consequently, better crisis management.
Managing a crisis is not an easy task and requires a series of components to be able to minimize the consequences, such as good planning, preparation, and leadership from everyone involved.
Therefore, in this article, we explain the main crisis that can affect your business and offer tips on how your company should prepare to face these moments.
We hope that it will help you in developing a great crisis management system for your company.
FAQs
How do Companies Manage Crisis?
To manage crisis companies should develop a crisis management plan by assembling a crisis management team and ensuring strong leadership and training the employees.
How do you prepare for crisis management?
The company should be prepared for the crisis by recognizing a potential crisis, checking the crisis readiness, researching your company records, reviewing your social media status, building the image of key leaders, strengthening your key relationships.
What are the six steps of handling a crisis?
The six stages within every crisis are warning, risk examination, response, management, resolution, and recovery.
What are the three stages of crisis management?
The management of crisis can be divided into three phases are pre-crisis, crisis and response, and post-crisis.
The economic crisis that jolted the Indian subcontinent in 1991 did not happen overnight. It was facilitated by a plethora of factors including poor economic policies, trade deficits that lead to the Balance of Payment crisis, inefficient public sector etc. The economic imprudence of the 1980s had started to set the tone for the impending crisis which was called a “policy-induced crisis par excellence” by Joshi and Little in their seminal work.
As the country’s fiscal policies were going loose at the behest of the country’s worst drought since independence and a global oil shock in 1979 caused by the Islamic revolution in Iran, the recommendations of the seventh Finance Commission was rather one-sided than concentrating on means to cater to both consumers and suppliers.
It recommended a significant increase in the revenue shares of states without easing the responsibilities of the central government, which caused the existing fiscal deficit of the government to sour.
The increasing political assertions of the marginal groups along with the decaying powers of political institutions also resulted in mere populist measures to address problems that were not only insufficient but also short-termed.
Along the same line, the country saw an increase in procurement prices with no corresponding increase in issue prices. Taxes were reduced and subsidies burgeoned ten times their value last year.
Import Liberalisation and its Ramifications
Deviating from its regular economic conservatism in 1976 the Indian government liberalised import which was expected to increase the supply of intermediate and capital goods. However, export growth could not keep up with it.
By 1985, imports swelled and India was facing twin deficits. One that of fiscal deficit and the other that of trade deficit. Average fiscal deficits moved up to 6.5% from 5% in the 1970s. The only factor that held everything together was the increasing remittances from employees in the Gulf region.
Political Instability and other indigenous and Exogenous Factors
The central government was going through a tumultuous time as the ruling party (Janata Party) split into two and collapsed. This political instability was accompanied by severe drought and the oil shock of 1979.
As agricultural productions nosedived by a sixth in terms of trade, oil prices and current account deficit soured. It was only the timely procurement of food grains over the year that saved the nation from famine.
The Deal With the IMF (International Monetary Fund)
In order to expand the energy sector, exports and savings, along with reviving the Indian economy the central government approached the IMF to fund its package in 1980. The IMF however, resorted to different financial measures which the country had to abide by.
Later, the Chandra Sekhar government failed to pass the budget and the poor ratings given by Moody made India ineligible for any short term loans. In this situation, the IMF also stopped their financial assistance which forced the government to mortgage the country’s gold for bailing out.
In May 1991, India had to airlift more than 20 tones of gold to raise $240 million. Although the desperate move was heavily criticized, it was inevitable.
Newspaper cutout of 1991
Balance of Payment Crisis
The 1980s also saw a BoP crisis as the current account deficit remained between 40% and 50% of the exports in the latter half of the 1980s. It resulted in the increase of external liabilities in the 1990s, 50% of which as owned by the public sector. India’s forex reserves started to deplete as imports increased.
By July 1991, India had only less than $1 billion in its foreign reserves which can last to fund three weeks of imports. The major cause of the Balance of Payment crisis was the inability of exports to catch up with imports, improper management of the investment savings which resulted in deficit and depending on non-concessional external borrowing to cater to that deficit.
The Gulf War in the 1990s was the tipping point for the already fragile Indian economy. The fuel prices skyrocketed which affected the prices of all goods in the country. The war also meant that a lot of Indians lost their jobs and had to come back. Thus, the remittances which held the economy together was not available anymore. India fell into a deep economic crisis where it was at a disadvantageous position from all sides.
The Revival of the Indian Economy
The Narsimha Rao government with Manmohan Singh as the Finance Minister, began its journey towards economic recovery. First, to reduce inflation and promote internal markets, export subsidies were cut.
The value of the rupee was first depreciated by RBI to 9% and then to 11%. Further, domestic supply constraints were cleared and doing business was made easier by reducing the complexity of procuring permits and licenses.
India: Gross domestic product (GDP) in current prices
The economy was liberalised, privatisation was promoted. Foreign Direct Investments were also largely encouraged. Industries were given better structural and operational freedom which helped them expand and develop. The budget of 1991-92 was more about continuing these economic reforms to sustain and strengthen the changes.
Conclusion
The efforts of the Narasimha Rao government was not in vain. Indian economy started to boom in the years that followed. At a time when the country is struggling with negative growth rates and shrinking GDP, the lessons learned from the 1991 financial crisis should be revisited and analysed so as to come up with efficient solutions. There is absolutely no doubt that there will be flaws.
Even the economic reforms of 1991 also had its own flaws and it still bears the grunt of the criticisms. However, it is important to come up with valuable reforms that can save the economy from an economic depression like in 1929.
FAQ
What caused the 1991 currency crisis in India?
The 1991 financial crisis was caused due to currency overvaluation.
Who was the finance minister of India in 1991?
Manmohan Singh was the finance minister of India in 1991.
Who was the prime minister in 1991 in India?
P. V. Narasimha Rao was the prime minister of India in 1991.
The onslaught of the novel coronavirus pandemic has had disastrous effects ever since it broke out the past year. Though the mortality rates have significantly reduced in many countries this year, the harrowing aftermath of the disease is what is still dragging on in many others, including North Korea.
North Korea is witnessing the worst slump that has happened in a span of more than two decades, according to experts.
But why is the Democratic People’s Republic of Korea in such distress?
For this, let’s delve into the background of the situation:
June 21, 2021 – Food crisis continues to soar in North Korea, along with the economic breakdown that the country is facing. Essentials like bananas are selling at Rs 3300/kg, a packet of black tea is priced at Rs 5190, and a pack of coffee is retailing at Rs 7415.
May 4, 2021 – In a series of statements released by North Korea on May 2, 2021, the country slammed US president Joe Bidden’s policies and rhetoric. Any talks of diplomacy are still stalled between the two nations as suspense rises in a fashion similar to that of the Cold War.
April 8, 2021 – North Korea has decided to stay away from the upcoming Tokyo Olympics. It is clear from the state-run website that the country would not be participating in the behemoth of sports events to protect its players from risking their health amidst the pandemic crisis. With this decision, it has become the first country to drop out of the Olympics.
The Background of North Korea
With the onset of the pandemic, North Korea had to also resort to restrictive measures on international trade and commerce to keep the pandemic at bay. However, these plans of limiting international sanctions have grown to become a self-imposed blockade on the trade, which has, in turn, backfired unprecedentedly.
What went wrong with North Korea?
There were a series of missteps along with some unfortunate events that together steered the situation towards the worst for North Korea.
Thriving in a pandemic situation it was evident to define a sustainable economic plan, which North Korea did, however, it failed miserably.
The inner circle of the government was poor with “innovative viewpoints and clear tactics” and failed to draw an effective plan that would work, Kim Jong-un said while addressing the frightened delegates of the ruling Workers’ Party last month. The economy minister, who was appointed in January has also been fired following the backlash.
China fuels North Korea with an ample supply of spare parts for factories and other manufacturing plants based out of the East Asian nation. As North Korea had already put a stop to their international trade, it has therefore blocked the influx of raw materials and other spare parts, fearing the spread of the deadly virus. This has resulted in the shutdown of some of the major North Korean factories including the country’s largest fertilizer plants.
Electricity has long been a chronic problem for the people of the country, which has been further aggravated by this acute deficit of materials. In addition, it has also disabled some of the country’s oldest power plants by limiting their total production of electricity. Furthermore, the production in coal mines and other mines is also experiencing massive disruption.
As per the words of Alexander Matsegora, “Without imported materials, raw materials and components, many enterprises stopped, and people, accordingly, lost their jobs,” said the Russian ambassador to the Interfax news agency.
Times are so rough that if you manage to get something in the country, you might have to pay three to four times the prices before the crisis,” he told Interfax.
Situations are similar even in Pyongyang, the capital and the stronghold of North Korea, which houses the country’s elites. The necessary products, including the basic food items like pasta, flour, vegetable oil and sugar, clothes, and shoes, are reducing at an alarming rate, mentioned Matsegora.
North Korea’s trade with China depleted by around 80% last year after Pyongyang shut its borders, intending to stop the spread of COVID-19, which would have otherwise easily penetrated the feeble health infrastructures of the country.
Though this crucial economic juncture that the country is now experiencing echoes of the famine of 1990, things have changed since then and North Korea doesn’t risk a famine at present. This is partly because of the significant development of food production and distribution across the nation and a supportive ally, China, who might come to the rescue of North Korea.
The present economic pain would not risk Kim’s regime nor would it pressurize the country to retreat from the standoff over Pyongyang’s nuclear program but it surely portends a period of excruciating pain and agony for the countless ordinary citizens of North Korea.
Kim’s Intentions
The way Kim Jong-un is responding to the crisis happens to be making the situation worse. Kim, who seems to be retreating to de facto Leninism, has started focusing on central planning. This has been distinctively limiting the private entrepreneurial activities, which are central to the country’s economy. This has been summed up by the Seoul-based Russian university professor, Andrei Lankov, as the “dramatic U-turn” of Kim.
The Supreme Leader of North Korea demands the restoration and strengthening of the system under which the economy runs under the supervision of the state, which has become clear in the speeches to the ruling party. He has further added that the metal and chemical industries are the “main link in the whole chain of economic development.”
Furthermore, Kim also has disclosed his plans to maximize the control that the state has on society along with putting a stop to the growth of foreign culture and media. In addition, he also wants to suppress the “powerful mass campaign against practices running counter to the socialist lifestyle.”
Kim’s recent move towards establishing a Stalinist economy work across the country, Lankov said, “is pretty much as hopeless as teaching pigs to fly”. The Seoul-based professor has also stated that Kim realizes that but he is also insecure about losing control. Therefore, he is choosing these times of crisis to expand his control over the economy and population and make his place secure.
Kim’s intentions revolving around central planning and the “juche” philosophy of self-reliance that he seems to be adhering to, is termed as “unrealistic” where the economy of the country is dependent on the trade with China, according to the experts.
FAQ
Is North Korea having a food shortage?
North Korea is facing a severe crisis after the Covid-19 pandemic, as prices of essential food items have increased sharply due to shortage.
Why is there food shortage in North Korea?
North Korea is going through an acute food crisis, due to the aftermath of floods, typhoons and pandemic, wherein the food prices have been as high as bananas selling for $45 (Rs 3,335) per kilogram, a packet of black tea for $70 (Rs 5,190) and a pack of coffee for $100 (Rs 7,414).
Why is North Korea poor?
Poverty in Korea has been attributed to poor governance by the totalitarian regime. It is estimated that 60% of the total population of North Korea live below the poverty line in 2020.
The recent news about the blockage of the Suez Canal has gained a lot of popularity on social media. The pictures of the blockage have been widely spread in the online world as memes. But the economic outcomes of the blockage of Suez canal are severe.
Let’s look at the Economic Outcomes of the Suez Canal crisis
A giant cargo ship which is 400 meter in length has blocked the Suez Canal. The Canal has been blocked by the ship for the past few days. The ship which is operated by the Taiwanese transport company evergreen marine is one of the world’s largest biggest container vessels.
The ship weighs 200,000 tones and has a maximum capacity of 20,000 containers. It is said that the ship had lost control after it entered the narrow passage of the Suez Canal from the Red Sea. The salvage company which is trying to refloat the ship has said that it might take weeks for them to complete the task.
Peter Berdowski who is the CEO of Dutch company Boskalis who is also one of the rescue teams trying to free the ship has said that depending on the situation, they can’t exclude that it might take weeks.
Economic outcome of the Suez Canal crisis
The ship has stopped 12% of the world’s seaborne trade and has already cost losses of billions. Almost 50 percent of the container ships pass through the Canal on a daily basis and around 30% of the global container traffic passes through it. The current situation is expected to cause a great damage to the global trade. It is expected that the prices of all essential commodities will increase.
The experts fear that the blockage has led to severe effect on the economy and the global trade. The blockage is costing around 400 million (around INR 2.8k crores) per hour, as ships are asked to take a longer route to reach their destinations.
Experts have said that this is the worst ship blockage ever witnessed. It is said that many cargo ships which have been diverted would take another 5-6 days to reach their destination.
Effect on Crude oil prices
It is said that more than 200 containers carry crude oils through the Canal on a daily basis. Experts have also told that the major hit would be for the small tankers and the crude oil exports from Europe to Asia.
The director of Asia oil at FGE Sri Paravaikkarasu has said that around 20% of Asia’s Naphtha which is crude oil is supplied through the Suez Canal. He said that re-routing of the ships would add more amount of fuel consumption for the ships that is around 800 tones and increase its operating expenses.
The shortage in the availability of the crude oil will lead to a jump in the crude oil prices. It is said that the crude oil prices have already increased due to the fear of the crude oil Suez Canal blockage in the past few days.
Data from Refinitiv has suggested that around 30 oil tankers have been waiting at both the sides of the Suez Canal. David Fyfe who is a chief economist at Argus Media which is a market research firm said that around 5-10 percent of the global shipments passing through the Suez Canal are crude oil, refined oil, and liquefied natural gas shipments.
Lars Jensen who is an independent container shipping expert based in Denmark has said that basically anything you see in the stores would be in shortage because of the blockage in the Suez Canal.
This includes everything from toilet papers, coffee, furniture, clothes, shoes, exercise equipment to car parts, carpets, and electronics. The blockage has also delayed e-commerce product deliveries which even include food.
Ian woods who is a marine cargo lawyer and partner at the London-based firm Clyde and Co. has said that, there are commodities worth millions of dollars on other ships waiting for the blockage to be cleared.
If the blockage is not cleared quickly then they would consider taking longer routes which will increase the operational charges and these extra charges will be carried down to the consumers.
It is said that eventually the consumers will have to pay the price and this blockage would have a deep impact on the end consumers. The exact amount and the exact effect of the blockage are not yet analyzed but the more it delays the consequences will increase.
Each day of delay will add more billions of dollars of losses towards the global trade and the economy.
FAQ
What country owns the Suez Canal?
The Suez Canal is operated and owned by Egypt.
What country built the Suez Canal?
In 1854, Ferdinand de Lesseps, the former French consul to Cairo, secured an agreement with the Ottoman governor of Egypt to build a canal 100 miles across the Suez.
Why did Great Britain want to control the Suez Canal?
Great Britain wanted to control the Suez canal, because it allowed them quicker access to its colonies in Asia and Africa.
When did Britain buy the Suez Canal?
In 1875 Britain bought Suez Canal from the Egyptians in £4million worth of shares.
Conclusion
However, Egypt’s Suez Canal Authority is looking forward to cooperating with the United States in efforts to refloat the container ship which has blocked the Suez Canal for the past few days. According to Arab News, the Canal revenue for Egypt was $5.6 billion in 2020.
The coronavirus outbreak has reached almost every corner of the world, with cases only continuing to soar day by day. In the months since the virus has emerged in Wuhan, China, there have already been signs of a shift in consumer behaviour all over the world. With the outbreak still in its early stages in India, sales of groceries, household goods and healthcare items have seen a boost as consumers look for ways to protect themselves. But analysis shows that it has had a reverse impact on other sectors. The government is taking various precautionary steps to contain the spread of coronavirus such as Janta curfew and 21 days lockdown during which only shops or businesses selling essentials are allowed to remain open. While, the other businesses are strictly closed.
At the same time, the impact of the coronavirus on ecommerce and online store is great. It’s a fact that a lot of things have been and will still be affected by coronairus. Unfortunately, one of them (what will be affected) is dropshipping! But what is Dropshipping? It is a retail fulfillment method where a store doesn’t keep the products it sells in stock. Instead, when a store sells a product using the dropshipping model, it purchases the item from a third party and has it shipped directly to the customer. As a result, the seller doesn’t have to handle the product directly. In other words, it is more of online store. One of the biggest concerns these store owners may have is that consumers will stop making online purchases over fears that they might get the virus from overseas shipments.
With many manufacturing and logistics facilities restricted or shut temporarily, experts have recommended them prepare for delays and take that into account before continuing to run paid ads and take orders. It is a good idea to check with your supplier, but assume that your items will not be shipped promptly. Or, if they are shipping things on time, disruptions to domestic shipping in the destination country could still cause delays. As a result of the continuous widespread of this virus, transportations all around the country are shut down partially or completely. This has caused the inability of all workers and employees to go back to factories and companies to work, which has affected operations in most companies.
The impact of COVID-19 has been massive on dropshipping. First, it means significant delays. Since the priority of the government is public safety, the authorities set prevention and control measures such as lockdown in place that disrupt the free movement of goods and people. These policies have left logistics companies in difficult situation, incapable to navigate the new restrictions, and without the government’s guidance, many are forced to freeze operations as they can’t provide a concrete answer. Moreover, Western sellers are confused about their action plan because most of them don’t know how to lower the possible financial risks. The forecast is not too encouraging if we consider the roadblocks and temporary closing of airports, highways, railways stations, and ports.
In the same way, this uncertainty will disrupt the business of startups & smaller vendors who very often depend on the products they sell; smaller retail traffic could push them into bankruptcy. Their ability to survive depends not only on the quality of goods but also on a speedy delivery process since customers want to have access to products as fast as possible. So, these circumstances obviously unfavourable for them to survive. Stocks have been said to fall on fears that the Coronavirus could take a more significant economic toll than initially expected.
In addition to this, the directive, orders from government during this lockdown have asked people to avoid travel and going out by working from home. These directives, orders from government which excluded emergency service workers and people who work for essential public services, urged the private sector to enforce similar arrangements. This means almost all the workers involved in the dropshipping process won’t have the chance to go work.
The fact is, most suppliers of dropshipping business depend on factories. As a result of COVID-19 and the compulsory -stay indoor- thing, factories will not be able to produce products at the expected date. Because of Coronavirus, the majority of workers will not be able to come back to suppliers’ factories to start producing. However, according to the current situation, the return date of workers may be delayed, which means dropshipping will suffer.
Drop-shipping is likely to be affected more due to Lockdown
If in case, supplier or suppliers have product stocks available, what about logistics? Logistics companies are also affected due to coronavirus outbreak as most of their workers are at home because government has allowed transportation of essential goods only. With the Government announcement of borders closing and all cities’ transportation systems closed, there’s no way logistics companies could work. If logistics companies don’t work, then there’s no way parcels and other dropshipping fulfillment products will be shipped out to their various destination. Most of the suppliers’ facility has been temporarily shut down by the government. So, it has left businesses with dropshipping with no option but to wait for the situation to get better.
As mentioned above the reduction in logistics and suspension of flights is disrupting the supply chain that is causing delays in shipping, reduced transport capacity, and inflation in shipping costs. As a dropshipper, it is your duty to inform your customers about the delay. The delays should not be affecting for a long time. However, you still need to put confidence in your customers and ask them to wait a little longer. One also needs to be prepared to refund them and wait for the situation to become normal.
The capacity for carrying couriers has been compromised after the lockdown. However, services will be resuming at a slow pace and should return to its normal operations in the upcoming weeks. It is in the best interest of dropshippers to avoid standard shipping.
One must try removing fear from the customer’s mind by letting them know that coronavirus does not survive for long on a surface. The postal services are already using disinfectants and taking extra precautionary measures to ensure the safety of their staff and packaging.
Remove fear from the customer’s mind by letting them know that coronavirus does not survive for long on a surface. The postal services are using disinfectants and taking extra precautionary measures to ensure the safety of their staff and packaging.
Avoid selecting standard shipping and choose a faster shipping method until the outbreak is controlled. It is recommended that you use only the express shipping method during this time.
The COVID-19 or Coronavirus outbreak has turned into a global emergency. It has no left no choice to entire nations but go into lockdown mode and economies prepare for impact. Many businesses across the world have already paused their operations as the pandemic requires social distancing, the closing down of services, offices and cancellation of events. Emergency preparedness plans have never been more in focus than this situation which has devasted many businesses.
It’s true, we can’t neglect the fact that the Coronavirus hasn’t spared the startup communities. Just the opposite, many startup founders are worried about the consequences of sweeping lockdowns and restrictions and difficulty in managing to stay afloat and keep their staff onboard. In such situations, startups are more vulnerable than established corporations because of limited access to services & capital. So startups are understandably more worried. Many startups are calling for hiring slowdowns as well as spending curbs, cutting out travel and preparing for a very tough time ahead. For startups, funding seems to be the first casualty and those that are in the middle of a fund-raise or have small reserves of cash are looking for solutions. Those that have already raised funds and have at least six months of operating capital should be fine too. According to reports, though overall funding has slowed down, the best companies will still get funded with delays.
However, pre-seed and seed-stage startups might find the going tough as burn rates rise and sales fall. It will be tougher for these startups to gain customers, find potential new business and scale-up. This, in turn, would make it more difficult to raise the next round of funding. Although we don’t know how the pandemic will play out over the rest of the year, it has many lessons on crisis preparation and management.
This includes taking care of and preparing for impacts upstream and downstream as well as for potential impacts within the organization. Don’t forget that many of these ideas could also help lead generation and getting people to know about your company and your expertise, so the effort you invest in these good deeds will your company and help you too. Here are ten steps to keep top of mind while dealing with this crisis.
Employees’ Safety first
Your staff should always be your first priority. Make sure they are safe. That may mean rethinking some work practices – you may need to restrict travel and switch to meetings via video or audio conference calls. Some offices may need to temporarily shut and employees be asked to work from home; most companies have already implemented this for desk workers.
Offer products and services free of cost
During this coronavirus crisis, many messaging platforms,video conferencing companies, online learning platforms are free offering services and removing the limits on their services to help the students and employees working from home. Some startups have been wholeheartedly offering free or substantially discounted services and products to help. If your brand offers anything that can support either people hugely affected by the pandemic or those who are staying at home in a need of a boost to keep up with their lives, this is the right time to give a hand. This will leave a long lasting impression on people’s minds which will surely help in future.
Work on innovative tech solutions to fight the Coronavirus
What else could be better solution than finding the tool or technology that helps in containing the spread of Corona virus. If you have an idea for developing a tool that could in any way be of help in the fight of the COVID-19 virus, then start working on it right away. Even Government of India has also arranged COVID-19 Solution Challenge to encourage entrepreneurs to find a technology that helps find the coronavirus. The entrepreneur or startup providing the best solution will receive the money prize. So startups can see this as a good opportunity to earn funding during this crisis. Just act quickly and remember that even a simple app that would encourage the citizens to adapt more easily to the changed conditions can take your organization ahead. To know more about this challenge, visit the Official Website – https://innovate.mygov.in/covid19/
Connect with the startup community
Coronavirus outbreak has just started affecting the Indian market but it has affected Chinese and American market many weeks ago. So their experiences & mistakes in dealing the crisis can be used as guidelines on how to survive in the crisis. So it is advisable start connecting with the startup community not just in India but communities worldwide. Some ways and solutions can definitely hey be found be found by interacting with these tech and start up communities. Just take Estonia, for example, whose tech community has already been tackling the coronavirus through various activities. Portugal has also put together a page for collaboration. There are many ways to help in the quick and smart development and implementation of the necessary measures. So, get as involved as you can and encourage others in your community to do so as well.
Companies are organizing Hackathons for others to Participate remotely
Organise or attend hackathons
Many companies & startups have organised hackathon. This has paved the way and many innovative solutions that arose as a result of the to-date organised hackathons aimed against the Coronavirus are now on their way to be developed and implemented. So this can be done in India too. Many revolutionary products emerged exactly at these events and we now desperately need more of them to combat not only the emergency circumstances but effectively manage the post-crisis period and prevent further isolation and loneliness.
Host free online webinars, podcasts or Q&A sessions
In light of the latest developments, many event organisers are shifting their conferences online. It’s uncertain until when we’ll all be at home. So, people have enough time. This is the right time to stay connected. This can be done in many ways. One can go live – whether it’s alone, with your team or maybe with professionals from other startups. Online event, webinar, podcast, YouTube video, Q&A and what not available to keep in touch & increase the network. These platforms can be used to give advice based on your expertise and help people to stay motivated.
Offer your advice on remote working
Majority of the companies have asked their employees to work from home. As a member of a startup, you are probably very well acquainted with the ‘working from home’ concept. But, bear in mind that millions of people have just had their first day working remotely. The newly-created situation has given thousands of managers no other choice but to lead their teams online, completely unprepared. This situation can be used to help them with tips in a blog, LinkedIn post, webinar to encourage people to get in touch by recommending them video conference tools & software.
One of the biggest mistakes companies make in times like these is to cut back on marketing. It will be the end of you. At best, a slow death. Although, it is difficult to sell products & services in this time but it is a good opportunity to market your services & products. Do demand a better ROI on your marketing. This may be the right moment to expand and pick up the slack from your competitors and seized their market share.
Check your coverage
Business interruption coverage covers income lost when you close down your business due to a disaster. However, it typically doesn’t pay out unless there is physical damage to the business. Talk to your insurance agent to see what, if any, coverage you would have if coronavirus forces temporary closure. If got, this can be used to keep the money flow going.
Have Patience
This is the time wherein many entrepreneurs can lose their hope due to things not going well. It is hard to predict how long this is going to last. However, it is the most important to not give up. Though it may look difficult to put the things back on track, it is essential to have patience because like any other time, “ This too shall Pass.” Have faith.
Since the World Health Organisation (WHO) has declared the Covid-19 or Coronavirus outbreak a pandemic, many companies are taking precautions against the impact and spread of the virus. The government also plans to close restaurants, bars and hotels nationwide along with non-essential stores. Companies are asking their employees to work from home for their safety. The Coronavirus outbreak has forced companies to slow or halt their physical operations, impacting production in the upstream sector. Meanwhile, downstream operations are upgrading their systems and pushing to work more flexibly. Many industries such as tourism, hospitality, retail, forestry and transport industry, etc. are facing great troubles. While many companies now allow their employees to work at home, telecommuting isn’t an option for many people. Restaurants also had to close except for pickup and delivery service. Also, vehicle manufactures Ford, General Motors and Fiat Chrysler are suspending production until the end of March.
But many people are unable to work due to the ongoing coronavirus pandemic as their job or work profile does not allow this work flexibility. This is just making employers cut the jobs as the employers cannot pay the wages. This situation is really severe in many countries. Now, the Coronavirus outbreak is resulting into huge lay-off which is again not a good sign. While there are state and federal measures coming to help those impacted financially, in the more immediate future people can file for unemployment benefits. While some employers are asking their employees to take unpaid leaves as a solution to this. This is all resulting into a global economic slowdown.
Ronojoy Dutta, CEO of IndiGo – India’s largest airline, announced on March 19, that the airline was instituting pay cuts for their senior employees and he would himself take the highest cut of 25 % amid the novel coronavirus pandemic that has hit the aviation industry hard. Also the Apollo Tyres chairperson, Onkar Kanwar announced a 25 per cent cut in their remuneration. GoAir, Indian low-cost airline has already sent 80 of its expat staff home. Vijay Shekhar Sharma, CEO of Paytm, told that he would not take his salary of this month and next. Not only Indian companies but many foreign national companies have also decided to cut off wages.
Many companies are laying off Employees due to coronvirus crisis
U.S. airlines, which directly employ close to 750,000 people, are on edge about how quickly lawmakers will provide aid to the industry, dealing with a collapse in demand. The executives have described this collapse even worse than 9/11. United and its competitors have decided to slash flights, freeze hiring and ask employees to take unpaid leaves. In tourism industry, job losses could reach 67,000 as coronavirus sees international tourism dry up and consumers pocket their wallets. Tourism, hospitality, retail, forestry and transport sectors are all expecting to shed thousands of workers with claims 5000 jobs are on the line unless there is immediate assistance for 65 large tourism businesses facing full or partial closure. Westpac NZ chief economist Dominick Stephens has quoted that the overall unemployment is likely to rise from 4 per cent to 5.5 per cent or 45,000 unemployed people. He further added that the drop in jobs could reach up to 67,000 when “shadow unemployment” is taken into account. Kenya Flower firms have sent home more than 1,000 employees after huge losses following a closed European market.
On the other hand, several companies also promised that they would not cut salaries of their staff and were not considering layoffs in the wake of the coronavirus pandemic. Rajiv Bajaj, managing director and chief executive officer of Bajaj Auto, has said, “I will cut my salary to zero before a single employee is laid off.” Similarly, other Indian business groups like The Aditya Birla group, the Vedanta group and the Essar group have also promised not to cut any jobs or salaries of their staff. U.S. airlines are asking for $58 billion in government aid, including direct grants.
This unemployment will have direct impact on country’s GDP and will result into much slower economic slowdown. As due to unemployment, majority of the laid off people will totally refrain from buying or using new products or services. This is directly going to affect the economic progress of many nations. According to some reports, new claims for unemployment benefits climbed to 281,000 last week as the coronavirus pandemic shuttered businesses and left people out of work. The Labor Department said that it was the highest level since Sept. 2, 2017, when they totalled 299,000.
Governments are helping companies Cope with Crisis
At the same time, many governments are trying to help the affected businesses & people cope with the coronavirus crisis. For instance, the UK government said that it will subsidize the wages of any worker facing unemployment because of the coronavirus pandemic as it ordered the closure of pubs and restaurants to try to contain the outbreak. Their finance minister Rishi Sunak told reporters that the government will cover 80% of worker salaries for at least the next three months up to a maximum of £2,500 ($2,900) a month. The Danish government announced that it will cover 75% of the salaries of employees paid on a monthly basis who would otherwise have been fired, with companies paying the remaining amount. But as of now, many governments have not taken any action to deal with the issue of lay-offs. It will be interesting to see how Indian government will react to the this phase of lay-off and unemployment.
Pratyusha Srivastava
