The Challenges that Firms Faced during the Pandemic, According to the NCAER

09 Dec 2021

Opinion: Bornali Bhandari Samarth Gupta Ajaya K Sahu and KS Urs 

The pandemic was a health humanitarian and economic crisis all rolled into one.

The NCAER Business Expectations Survey (BES) tracked firms throughout the pandemic period on a quarterly basis trying to understand the challenges that they faced how they adapted and whether they were able to leverage government benefits targeted at them. In this article we focus on the challenges that the firms faced in 2020 and 2021. The NCAER BES covers 500-600 firms across four regions – North (NCR Delhi) South (Chennai & Bengaluru) East (Greater Kolkata) and West (Mumbai & Pune).

The BES questionnaire was kept dynamic in the sense that there were some questions that were kept constant and some were changed depending on the need of the evolving situation.  Also they were not necessarily asked in the same manner as our learning evolved.  Last but not the least we had asked firms in some rounds to rate on the severity of the challenge that they were facing.  

The challenges are divided in three broad categories – operational cash flow and hiring workers. Table 1 summarizes the responses of firms about the challenges that they faced over the last one year.

Author Provided

Operational Challenges

Faced Logistic Issues: The share of firms reporting this to be a challenge had increased over the last six quarters. It reached its peak in the second wave of the pandemic in 2021-22:Q1 39.6 per cent of responding firms had even reported this to be a severe challenge.  What is a concern is that a quarter of firms continued to report this a severe challenge in 2021-22:Q2 as well. The regional variations show that 65.6% of firms in the North reported this to be a severe challenge.  67% of service sector firms reported this to be non-issue for them in 2021-22:Q2.

Ability to source raw materials from suppliers: Slightly more than 20% of firms had reported this to be challenge in 2020-21:Q3 as against 35% in 2020-21:Q2. While this was not a challenge for majority of the service sector firms a larger share of firms with annual turnover ≤ Rs 100 crore perceived this to be a severe challenge (65%). The corresponding number for firms with annual turnover greater than Rs 100 crore was 46%.  However we had not continued with this question as both domestic & external markets opened up.

Ability to meet pending sales order: This challenge was especially acute too during the second wave of the pandemic in 2021-22:Q1. However even during the second quarter 23% of firms continued to report this as a severe challenge. This is an acute challenge in the Northern region as 54.4% of firms reported this to be a severe challenge. 66% of service sector firms reported this to be non-issue for them in 2021-22:Q2.

Cash Flow

Ability to get dues in time: 80% of firms reported this be a challenge in the second wave of the pandemic and 40% reported this to be a severe one. However this number has come down in 2021-22:Q2. This was not a problem in the services sector as 61% of firms reported that no dues were pending. However 18% of firms in the western region reported that no dues were pending.

Ability to pay suppliers on time: The prior rounds indicate that approximately 40% or lower share of firms were having problem in paying suppliers on time.  However in 2021-22:Q2 80% of firms reported this to be a challenge and 18% reported this to be severe one.  

Hiring Workers: This was a severe challenge in 2020-21:Q2 which had eased over the subsequent quarters. Currently while firms are reporting this to be a challenge it is not a severe one.

Policy Implications

The challenges have eased in 2021-22:Q2 from the time of the second wave of the pandemic. However firms in the North continue to face operational challenges in logistics issues and ability to meet pending sales order.  This needs to be examined more deeply as to what particular challenges are the firms facing which can then be addressed.  Cash flow is clearly a problem in the West.  More needs to be done by States to address the challenges that firms are facing.

Bornali Bhandari is Senior Fellow KS Urs Associate Fellow and Ajaya K Sahu is Senior Research Analyst at NCAER.  Samarth Gupta is a former Associate Fellow at NCAER. Views are personal.