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INDIAN MANUFACTURING SECTOR Coronavirus pandemic: Where Indian manufacturing is heading

Apr 10, 2020

As India and the world tackle the current coronavirus pandemic, we see the manufacturing industry feel its negative impact as well. While the virus has shaken the industry, there still might be a ray of hope for it. The Viewpoint section finds out what steps manufacturers should immediately take to stay on track and make most of the revival, once the Indian manufacturing industry finds itself stabalising again, how big corporates can help the SMEs and how India can monetise best during this period.

To avert a disaster, businesses should cut down on unnecessary costs - Ashutosh Athalye, Sr Vice President - Projects, Technical & Business Development, Sigma Electric Manufacturing Corp

There’s already a collaborative effort & collective action happening between the Indian government & the industry to minimise the impact on the economy, which should help revive the industry at a faster pace. Once the lockdown period is over, India has an opportunity to increase production capacity, focus on an export-driven model and give a thrust to the ‘Make in India’ campaign. A shortage of workers is expected for a few weeks after the lockdown goes away and applying technologies to do crash training for newly recruited manual labour workforce is very essential. However, the manufacturing industry is also facing a cash flow problem on account of the halt in production. To avert a disaster, businesses should cut down on unnecessary costs and do a scenario planning for cash flow, P&L, balance sheet and identify triggers that might significantly affect liquidity.

While SMEs have got scathed with COVID-19, the government & RBI should leverage the sharp drop in global oil and gas prices, which will help India reduce its trade deficit and also the current reduced inflation to give more funding to MSMEs. Non-scheduled rate cuts, moratorium of a few months on EMIs, interest and loan repayments & incentives to the exporters to compensate for GSP withdrawal are expected to support them. Also, with many global manufacturing MNCs planning to shift production to India, we have an advantage of an English-speaking workforce with ample technical talent. This becomes our benefit for capturing more business from the US & European customers. This value of skilled Indian manpower needs to be supported by the long-awaited labour & land reforms and requirement of massive infrastructure improvements, lower administrative bottlenecks, investments in steady power supplies, efficient port and road operations and greater ease in custom clearance & elimination of connectivity issues.

The SMEs should learn from this crisis & tighten their belts - Gaurav Awasthi, Division Head – Quality Control Centre, Honda Cars India

The government has done a commendable job in spreading awareness about the pandemic till grass root level. With such a global crisis, the public sentiment gets low & people tend to hold on to buying. Thus, it becomes imperative to generate excitement to boost the demand in the market that can be done through customer-centric schemes. Only then can the industry really return to its normal pace; and currently, it seems to be a long haul. One of the reflections from this crisis has been the lack of preparation & flexibility. The Indian manufacturing industry should plan in parallel for the modernisation of its facilities to run on lower inventories & higher flexibility, which in turn will boost their liquidity and keep them better prepared for such situations.

What’s more, SMEs are the backbone of the economy. Their collapse because of the pandemic will have a direct impact on the overall manufacturing sector. The government should support them with relief in the areas of taxation. Also, banks should write off / defer loan re-payment to the needy. The schemes and benefits extended to the SME sector should be adequate to bring them out of the woods. The SMEs should learn from this crisis & tighten their belts to be more prepared for the future. Plus, India has the world’s largest young population & currently the unemployment rate is as high as 8%, which is likely to go higher as the after-effects of the COVID-19 are felt. The shifting of MNC production facilities will be an opportunity to take care of this crisis as well as providing meaningful employment to our youth. The government should identify simplification of policies and fast tracking of approvals to make sure that this opportunity is not lost on us.

Continuous bettering mode will be needed to truly benefit - Ramesh T K, Managing Director & CEO, Micromatic Machine Tools

As the saying goes, every dark cloud has a silver lining. Despite COVID-19, there will be opportunities. We normally assess things differently and perhaps more meaningfully when we are in a crisis. We will have to rethink for the geographic risk mitigation, having capacity closer. These strategies should be leveraged as opportunities by the industry to come back to normal. However, we should be careful as the ‘new normal’ post-COVID-19 will be different compared to the normal that was before the crisis took place. With the lockdown declared, the manufacturing industry should already have begun using this time to learn and critically look at its operations & the scenarios that could probably emerge. The key steps that could be taken are critically removing identified waste from operations as it was before, questioning existing processes & methods and strengthening their internal people connect with even better transparency and a much stronger interdependence ideology.

When it comes to SMEs, I believe that they were and will continue to be an integral part of the Indian manufacturing story. It is important that both, the government and corporate support them with cash flows, technology & training. It is important to differentiate in this sector between those that predominantly reduce cost for their corporate customers and those that add value to them. From geographical risk mitigation, many MNCs will look at India and may even make some concessions. It’s how we respond that is critical and goes back to the point that we ‘only lower cost’ or ‘better value’. A learning & continuous bettering mode will be needed to truly benefit.

The shutdown period is an opportunity for learning and upgrading skill-sets - Ravi Raghavan, Managing Director, Bharat Fritz Werner (BFW)

Every crisis brings an opportunity and we sincerely believe that it will be one of those times when the industry will work with the government and civil society to come back stronger. We, in India, are different in the sense that we have a strong domestic requirement /demand. So, even if the global demand collapses, there would be some space to maneuver for us, compared to other economies. The shutdown period is an opportunity for learning and upgrading skill-sets. Citizens, industry leaders and the workforce should constructively think and plan so that ideas get generated and implemented when the shutdown ends. Continuous learning and skill-set upgradation will become a mandatory aspect of the business and a quality seen in all future hires and internal promotions. The post-Covid situation will also offer our country opportunities to prepone our Prime Minister’s dream of a $5 Tn economy. The opportunities we see are clearly emerging in the sphere of automation and robotics, the industry’s insatiable urge to implement Industry 4.0.

Plus, the crisis would be a good leveler – bigger companies will realise that MSMEs are an integral part of the ecosystem which give the large companies the cost and skilled manpower advantage. It will be prudent for every large company to create synergies and collaborate with MSMEs and have a global advantage. Moreover, the government and the RBI have announced a slew of recommendations. Industry bodies like CII & IMTMA are working very closely with the Government of India & have made constructive recommendations which the government is working on. The Indian companies need to grab every opportunity which comes their way. This will make them stronger and an integral part of the global supply chain. Going forward, innovation, quality and cost will be the focus of companies more and more.

This lean period is being used by organisations to focus on emerging sectors - Rajesh Nath, Managing Director, VDMA India

Though India will be better off, in comparison to other countries, due to high dependence on domestic markets, economists predict a dip of nearly 0.7-1% in the country’s economic growth due to the COVID-19 outbreak. Not only products, services and processes need to change, but companies have to change more fundamentally. They need different business models, leadership and ways of interacting with each other.

Companies should invest in online as part of their push for omnichannel distribution. This lean period is increasingly being used by organisations to focus on emerging sectors like medical, railways and environment & waste management. Segments like textile, electronics and auto components (especially EVs) have witnessed the maximum impact due to supply chain disruptions and shipments via sea being suspended. This will lead to strategic investments for localisation / decentralisation. The trend may go towards developing supply chain closer to avoid such disruptions in the future.The government has already made a broad assessment of the impact on selective sectors, such as financial services, hotels, trade and micro, small & medium enterprises (MSMEs) from interactions with ministerial colleagues and companies. Measures including relaxation of various tax compliances could also be announced in a staggered manner.

In India, there is a need for a massive push for creating a robust infrastructure. This calls for investments in steady power supplies and greater ease in custom clearance. Hence, there is scope for India to take pre-emptive action — driving companies towards India. The country needs to move away from an input-base system to a more support-base system that would promote participation in the supply chains. Further, the labour laws have to be modified to enhance productivity and flexibility.

Big corporates must help SMEs - Neeraj Bisaria, CEO & Managing Director, Premium Transmission

Reviving the industry will be a herculean task after a normal situation is envisaged, since there are several dynamics of human interaction within groups and teams. Inter and intra company will change for domestic as well as international clients and bringing people back to work at a normal pace, with an elevated form of motivation, will be the biggest challenge. Once the stabilisation starts showing, we need to start working on a comprehensive strategy for automation and digitisation of work places, with IoT and Industry 4.0 becoming the top most priority, so that the future work place will be more remotely managed than personally. Workplace hygiene must also be redefined and should become a matter of mandatory compliances.

Most companies would like to make and develop second source in their critical supply chain. But whether India can convert this into a big opportunity and make it a success will depend on how the government and the industry work together, with an intense focused approach and by facilitating environments, which promotes a faster pace of investment, both at the policy level & by shortening the Indian bureaucratic cycle by big margins.

Dependence on too much of manpower should change to better IoT systems - D S Ravindra Raju, President – Manufacturing, Deepak Fertilisers and Petrochemicals Corporation

With COVID-19 hitting the world, reducing dependence on China is a major shift and an opportunity we should see. There is a big opportunity vis-à-vis China, if we can come out fast with minimal damage. Dependence on too much of manpower should change to better IoT systems, using manufacturing 4.0, as the industry is already running with 50% or less manpower. This will improve efficiencies and companies will be able to compete better.

Furthermore, special sustenance package of working capital should be considered for the manufacturing sector to allow it to come back on rails as quickly as possible. CII/FICCI etc should work on advocacy right now and guide the government on further steps that need to be prepared. Also, instilling confidence through better health care is a major challenge. We need to see an opportunity of automation to load packed materials.

We have an opportunity to fill the insufficiency of materials supplied by China - Sunil Mahajan, Group Manufacturing Head, Dalmia Cement (Bharat)

Reviving the economy will be challenging as most industries will need to reactivate their plants, reassess their entire business plans, create risk management plans not restricted to just the monetary aspect and get productivity back at pace. With organisations closing down their industrial facilities and assembling units around the world, it is safe to say that homegrown companies need to concentrate on strengthening and modernising their manufacturing facilities in order to achieve operational efficiencies, thereby providing impetus to the country’s economy. Capacity utilisation should be another aspect that industries need to look upon where they can maximise it, thus, contributing more to the production.

The sudden outburst of COVID-19 cases over the past few months have not only cast its shadow on financial markets worldwide but have also disrupted the global supply chain network. As majority of the companies rely on China for production, they are now looking for alternative manufacturing hubs. This movement of companies away from China has triggered a new wave of industrial development for nations such as India. We, as a country, have an opportunity to fill the insufficiency of materials supplied by China.

The outbreak has also put SMEs in a blind spot. As per the government data, micro-SMEs and MSMEs employ more than 100 million people and account for 45% of the factory output and over 40% of the nation’s exports. Therefore, this labour-intensive sector needs instant fiscal relief and credit flow to keep their workforce and operations running. In a major relief to imports/exports, the government said that customs clearance is now an essential service till June 30, 2020 and it will be working 24/7. While there is a huge road ahead of us to revive from this situation, such steps taken by the government will lead us to the path of redemption.

The government plays a key role in ensuring that SMEs remain - M Govindarajan, Chief Operating Officer – Plant Head, IP Rings

The government has to ensure that when the economy kick-starts again, the general public should be in good spirits and there is enough liquidity and positivity for the consumer to reach the store for purchases, especially with regards to non-essential commodities. The government also plays a key role in ensuring that SMEs remain. Moreover, it should make it a top priority that employment levels do not drop. For this, there should be a two-fold approach, where it should give grants, waiver and moratorium for loans, interest and statutory payments. These have to be first given to large corporates and ensure that the cash released by the above is necessarily used by them to pay their tier 1, and by tier 1 to tier 2, and tier 2 to tier 3 and so on.

Once the manufacturing industry in India finds itself stabilising again, the first step is to be ready for a restart; most factories have not stopped operations for such a long period and this will be a key challenge – things can go wrong when the factory is opened. The next important step would be to get back the trained manpower.

However, a huge opportunity will open up where weak companies will fade and only the strong will remain; it will be the survival of the fittest. This will lead to lower capacity in the country, which can be leveraged by strong companies by using this opportunity. At the same time, production costs and sale prices have to be kept low to ensure price stability or even reduction to kindle demand.

The industry will have to work overtime to keep its promises - Hemant Watve, CEO & Managing Director, WILO Mather and Platt Pumps

This is a lifetime opportunity for the manufacturers to prove their mettle. The demand cycle will surely pick up and the one who responds to the new demands will be the most successful entrepreneur. Manufacturers will have to focus on conversion efficiency and response time, as these dimensions have to shrink. Polishing the skills and bringing in a 100% non-compromising attitude in quality and services will be key to success. The well-diverse industrial supply chains in India will be of advantage to the Indian suppliers.

As it happens, the situation in India is a bit different from the other countries, owing to the fact that India’s trade relations with China was limited and the cases that are surfacing in the country are more from secondary transmission. The lockdown announced by the government is likely to result into the drying up of the supply chain and the demand side will overtake the supply side in the April-June quarter. The industry will have to work overtime to keep its promises and we are likely to see a kind of a sudden surge in manufacturing activities. Besides, the services as well as non-priority segments will suffer for another few quarters.

The government must also take steps to keep the industry employable. Making labour law reforms in terms of banking of hours and allowing industries to use it during the next one year without any recourse could be an important step. Additionally, in countries like China, Korea and even in USA, the government is giving industrial land at almost no cost. If India has to attract FDI, it must resort to such a thing. The labour laws in India are considered to be highly inflexible and reforms in those laws are a must to attract foreign companies.

Image Gallery

  • Ashutosh Athalye

    Sr Vice President - Projects, Technical & Business Development

    Sigma Electric Manufacturing Corp

  • Gaurav Awasthi

    Division Head – Quality Control Centre

    Honda Cars India

  • Ramesh T K

    Managing Director & CEO

    Micromatic Machine Tools

  • Ravi Raghavan

    Managing Director

    Bharat Fritz Werner (BFW)

  • Rajesh Nath

    Managing Director

    VDMA India

  • Neeraj Bisaria

    CEO & Managing Director

    Premium Transmission

  • D S Ravindra Raju

    President – Manufacturing

    Deepak Fertilisers and Petrochemicals Corporation

  • Sunil Mahajan

    Group Manufacturing Head

    Dalmia Cement (Bharat)

  • M Govindarajan

    Chief Operating Officer – Plant Head

    IP Rings

  • Hemant Watve

    CEO & Managing Director

    WILO Mather and Platt Pumps

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