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Covid-19: ‘Maximum City’ Mumbai Braces For Maximum Economic Hit

Covid-19 has hit megacities like Mumbai hard. How will the economy of the city respond to the shock?

Bandra-Worli Sea Link road wears a deserted look during ‘Janta Curfew’ in the wake of coronavirus pandemic in Mumbai on Sunday, March 22, 2020. (Photo: PTI)
Bandra-Worli Sea Link road wears a deserted look during ‘Janta Curfew’ in the wake of coronavirus pandemic in Mumbai on Sunday, March 22, 2020. (Photo: PTI)

The Globalization and World Cities Research Network ranks cities based on their strength in the global economic network.

New York and London are ‘Alpha ++’ cities. Hong Kong and Singapore are ‘Alpha +’. Mumbai, the highest ranked Indian city, is tagged ‘Alpha’. New Delhi makes it to the ‘Alpha -’ category.

By their very nature, these cities are densely populated, bustling with activity, dominated by services ranging from retail to hospitality. And by its very nature, the Covid-19 crisis is hitting such cities the hardest.

From New York to London and Hong Kong to Singapore, large cities are struggling to contain the spread of the novel coronavirus and its economic consequences.

Mumbai is no different.

A Barclays report dated April 1, which focused on Asia’s mega cities, said that the Covid-19 outbreak has had a “particularly profound” impact on the functioning of Asia’s megacities and the clusters around them. “We find that the absolute economic loss is likely be the largest from the shutdown of Kuala Lumpur, Manila, Delhi and Mumbai, ranging from $1-1.7 billion per week,” the report said.

The Mumbai Economy

With 13,564 positive cases of the novel coronavirus and more than 500 deaths, Mumbai continues to be in the ‘red zone’, even as some parts of the country attempt a staggered reopening. This means that much of the city’s non-essential activity remains shut. Local trains are not functioning, malls remain closed and restaurants are operating only through delivery services.

Much of Mumbai’s economy remains closed for business.

The gross value added of the Mumbai Metropolitan Region was Rs 8.6 lakh crore in 2018-19, as per the latest data available. It accounted for about 5 percent of India’s GVA as of that year.

Like in most megacities, Mumbai too has a dominant share of non-tradables sector, which makes up nearly three-fourths of the city’s economy. Non-tradables are small goods and services which can’t be traded across long distances. The producer and the consumer of these goods and services need to be within a short distance of each other.

Given the large share of non-tradables, the loss of output from shutdowns in these cities cannot be recouped and “it’s a permanent loss”, the Barclays report said.

No sector is expected to remain unscathed, said Pronab Sen, country director for the International Growth Centre’s India programme and former chief statistician of India. In the case of services, the impact will depend on the nature of services but could be more longlasting if people remain scared of resuming normal activities due to health concerns, Sen said.

Estimates on the extent of impact for the Mumbai economy weren’t available. For the whole of India, forecasts for real GDP growth in FY21 range from 2 percent, according to the government’s Chief Economic Adviser Krishnamurthy Subramanian, to -5.2 percent by Nomura. In FY20, the Indian economy is estimated to have grown by 5 percent in real terms.

Those That Will Bear The Brunt

According to data published by the directorate of economics and statistics, until 2013-14, trade, hotels, restaurants and real estate made up for the largest segments of Mumbai’s services sector. Data since then is unavailable.

While the precise share may have changed since then, retail, hospitality and real estate remain large contributors to the city’s economy and the employment it provides. All three are set to take a hard knock.

About a fourth of all restaurants in Mumbai may not reopen, said Pranav Rungta, head of the Mumbai chapter at the National Restaurant Association of India. About a fourth of those that do reopen will have to shut in the next few months due to weak demand, he said.

The high rentals and cut-throat competition make Mumbai a very challenging city to run a restaurant in, said Rungta, adding that 70 percent of all restaurants in the city don’t survive more than three years.

Along with servicing high rentals, restaurants will now require large working capital to restart. They will also face a crunch in staff, Rungta said. If all of these troubles are combined with fewer customers to keep restaurants bustling, survival will be a challenge for many.

Retailers will face similar challenges.

“Mumbai alone is responsible for about 5 percent of India’s $750 billion retail sales market,” said Kumar Gopalan, chief executive officer of the Retailers Association of India. With the entire city classified as red zone, retail continues to be hit hard. “About 25 percent of the retailers in the city are expected to go out of business,” he said.

As these businesses find it difficult to survive, the employment opportunities they provide will fall. An average mall in the city employs about 3,000 employees directly and about 9,000-10,000 employees in all, Gopalan estimates. He argues for easing of restrictions in areas where there are fewer Covid-19 cases. In malls, it’s possible to practice social distancing, Gopalan said.

For the real estate sector too, Mumbai is one of the largest markets, according to Samantak Das, chief economist at consultancy JLL. “Residential real estate has been hit because of the shutdown and now reverse migration, he said. Das does not expect sales to pick up until the last quarter of the calendar year, when the festive season hits. “Premium and luxury real estate sales will take even longer to recover.”

Shoppers ride escalators at a mall in Mumbai, India. (Photographer: Brent Lewin/Bloomberg)
Shoppers ride escalators at a mall in Mumbai, India. (Photographer: Brent Lewin/Bloomberg)

A Long Overdue Wake-Up Call?

The Covid-19 crisis may also act as a wake-up call for cities like Mumbai, where infrastructure has failed to keep up with surge in migration and population density.

How do you practice social distancing while sharing public utilities and with space constraints, asked Anand Sahasranaman, assistant professor of economics and mathematics at Krea University. Sahasranaman’s research has focused on developing a scientific understanding of economic performance and agglomeration effects. “There is sufficient evidence to show that migration has almost entirely bypassed smaller towns for metropolitan cities in India. Mumbai, for instance, has faced challenges because of dense population and crumbling infrastructure, long before the current pandemic,” he said.

Sahasranaman said the city needs to double down on its efforts to provide basic infrastructure such as housing, sanitation and water supply. “Instead of moving people out of slums to vertical slums like the ones seen in Mumbai and other megacities, slum dwellers need to be made stakeholders in their development. Provision of common amenities in these areas also needs to be reconsidered,” he said. Public transport needs to be rethought to redevelop multi-modal networks, with multiple components of public transport, Sahasranaman added.

Once the dust settles, should the central and state governments focus on developing the next rung of cities, beyond just Mumbai and Delhi, to the hundred chosen smart cities? Sahasranaman believes they should.

Madhav Pai, director for India at the World Resources Institute’s Ross Centre for Sustainable Cities, said the Mumbai Metropolitan Region Development Authority will have to think and plan ahead instead of continuing the current haphazard model of development.

“The current pandemic may very likely be change the region’s socio-economic dynamics,” he said. For instance, a higher population could translate into a higher rate of unemployment, causing poverty and crime rates to rise, Pai cautioned.

However, Pai also believes that while mega cities like Mumbai are hit harder in the short term, they are better equipped to stage a comeback. “Large cities like Mumbai always have an advantage since they are centres of economic activity. So they will bounce back in 2-3 years,” he said.