12 Jan 2021, 09:45 — 7 min read
John F. Kennedy, the 35th US President had once remarked, way back in the late 1950s, that in any crisis, while taking due precautions, opportunities must be recognised. With the world entering the tenth month of the Covid-19 crisis, the world seems to have come a full circle and this statement could not have been more relevant today.
In this series of articles on the impact of the Covid-19 crisis on various sectors of the Indian economy, we look at the manufacturing sector where the pandemic has probably had the maximum effect on the livelihood of Indians. This is especially visible in the urban and semi-urban areas.
Let us consider two prominent industries, both at the extreme end of the spectrum, in terms of their size and their contribution to the Indian GDP. On one hand, we look at the Automotive industry and on the other extreme, at the Toy making industry. While the former, according to estimates of industry bodies, within manufacturing, contributes about 10% of India’s GDP, out of the 20% of the total GDP contribution by the overall manufacturing sector. The latter’s contribution to the GDP is minuscule. While the Automotive industry was reeling under a major slowdown, the Toy industry in India has had a breather mostly on account of restrictions in import from China.
Also read: Automotive industry and relevant laws
On the other hand, in the unorganised manufacturing sector, where the majority of the Indian workforce makes a major contribution, the situation has been much worse. The painful uncertainties of the lockdown and the subsequent confusion over the lifting of the lockdown only added to the growing state of helplessness amongst the workers. The initial confusion immediately after the lockdown where lakhs of workers were stranded in major metros, with neither any known means of transportation nor any news of the end of lockdown added to the depression amongst factory workers.
Even prior to the lockdown, pre-March 2020, the state of the economy in the MSME sector was not too encouraging. With credit offtake at an all-time low, and subsequent choking in the supply chain, added to the spurt in the import of certain items, this sector was already reeling under a major phase of helplessness and uncertain future. All this led to a cascading negative effect leading to a highly aggressive response from the suppliers, leading to short-term overproduction and medium-term distress sales. Most MSME with low financial, technical, and marketing power were the first to get affected. There was a clear indication of choking, mostly on account of disturbances in the transport sector, of distribution channels due to this effect and as a result, goods were being offered at cheaper prices, providing volume support, but hitting the profit and profitability. The extreme pressure of either nil or negative growth led to unconventional pressure on the financial system. There were innumerable instances of missed EMI and interest payments. Although the government did pitch in with a moratorium on the EMI, the ‘interest on interest’ confusion only added to the woes.
As more and more employees were barred from coming to work, manufacturing was one of the worst affected sectors, with the majority of the units working with skeletal staff. This was mostly on account of lack of proper public transport system as well as lack of trust in the public health system, in the unfortunate case of contracting the dreaded Covid-19.
Some industry verticals, on the other hand, such as in healthcare, technology gadgets, etc actually reported a growth in their business. With the majority of people using masks and sanitizers and also working from home, these two verticals might have grown, along with manufacturers of essential goods, although only marginally. On the other hand, items such as textiles, shoes, and such non-essential items suffered the sudden loss of business.
Historically these kinds of slowdown take a long time to rebound. With a minimum number of trained workforce reporting for work, the scale of operation, as well as the quality and the volume, suffered badly.
Companies with an agile turnaround process and high maturity over usage of technology are bouncing back faster.
As per our interaction with various C Level Executives in manufacturing, the formula of a quicker rebound remains the same as always. It has become a simple plan for survival for some but a faster recovery and growth opportunities for others. The differentiator has been companies with high operational efficiency, highly trained, and thus motivated workforce. Also, companies with an agile turnaround process and high maturity over usage of technology are bouncing back faster.
One of the most crucial sectors for the success of manufacturing is the Supply Chain and the Logistics part. While there were instances of confusion over different states interpreting the overall directives of the Central Government, with their own rules of goods and manpower movement. This was also dependent on the Covid-19 spread situation in their own state.
To summarise, based on our interactions over the last few months, the balance part of the current FY 20-21 is expected to be tough for most businesses, with most business owners expecting things to improve from the first quarter of FY 21-22. At the same time, the recent news of a new strain of the Covid-19 virus has most businesses worried. Uncertainties in business are forcing businesses to reduce operational expense and avoiding long term expansion plans.
Only the very innovative and the most resilient will survive this crisis.
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Image source: shutterstock.com
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Posted bySameer Mathur
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