Calling For Help
At a time when companies are asking for sops and support to revive manufacturing, and need to be heard, a lot of noise is being made for wooing foreign manufacturers. Are we on the right track? By Ashish Sinha
Photo Credit :
It’s the weak and the infirm who have taken the maximum beating in this Covid-19 pandemic. And this is true for India’s manufacturing sector as well, which for long has been gripped by inertia due to inherent weaknesses. These anomalies have further shackled the sector in the wake of the Covid-19 outbreak and the subsequent lockdown.
To put the sector’s woes in perspective, the fiscal 2019-20 was particularly bad for manufacturing clocking as it did an abysmal 0.9 per cent growth, against 5.7 per cent in the previous fiscal, as per National Statistical Office estimates. Even at current prices, the growth was just 1.1 per cent, which showed the manufacturers were left with no pricing power.
The share of manufacturing in India’s GDP has remained constant at around 16 per cent for last many years, and is unlikely to improve this year. For a sector that operates in clusters — Special Economic Zones (SEZ), Free Trade Zone (FTZ), Export Processing Zone (EPZ), etc. — and as individual units, in both in rural and urban areas, and employs over 100 million people directly and indirectly, the lockdown virtually brought it to a standstill.
“Many sectors have approached Ficci for support like textiles, automotive, pharmaceuticals, food processing, agriculture, electronics, ITeS, construction, etc. Some of these have started their partial operations with due permissions. We have engaged with more than 2,000 firms during this period on over 7,000 issues,” says Dilip Chenoy, Secretary General, Ficci, the apex industry body.
Now, as the sector tries to get back on its feet amidst the lockdown, it has to contend with a number of issues. Says Deepak Sood, Secretary General, Assocham: “Since most of the industrial activity is concentrated in the Red Zones, the resumption of operations is taking place at a slow pace amidst multi-fold challenges. For one, there are elaborate national guidelines of the Ministry of Home Affairs and SOPs to be followed; secondly, the supply chain stands broken. The front end dealers/distributors remain largely inoperative and logistics too are working at sub-optimal capacity.” He adds: “Assocham is in constant touch with the units across different sectors and taking up their case with the Centre and the state governments.”
According to Sood, the industry needs immediate liquidity for meeting working capital requirements. But there is hardly any cash to pay fixed costs like rentals, electricity bills, and water charges and wages/staff salaries. “The cost of operations will mount with strict implementation of the norms on social distancing, transportation of workers, and other SOPs,” he says. With banks being totally risk averse, the much-awaited stimulus package is not forthcoming. “We would urge the government to come to our rescue immediately,” adds Sood.
What are the specific demands from the manufacturers? What is Ficci doing to help them? “The immediate need is of working capital, demand, and availability of labour. We have represented extensively on these aspects with the central government’s various departments,” says Chenoy.
Amidst the pandemic, the lockdown and the reverse migration of millions of labourers, states like Uttar Pradesh and Madhya Pradesh have announced suspension of several laws related to labour in order to woo foreign companies to set up manufacturing units in their states. As a result, only the Building and Other Construction Workers Act, 1996; Workmen Compensation Act, 1923; Bonded Labour System (Abolition) Act, 1976; and Section 5 of the Payment of Wages Act, 1936 (the right to receive timely wages) will apply in Uttar Pradesh for the next 1,000 days.
All other labour laws will become defunct. These include laws on industrial disputes, occupational safety, health and working conditions of workers, trade unions, contract workers, and migrant laborers. The new set of laws will apply to the existing businesses as well as new factories being set up in the state. Is it a wise move that every manufacturing state should adopt? The jury is still out and one still has to wait for the official word on an overseas company setting shop in the state.
However, Ficci’s Chenoy thinks the Covid crisis can lead to a major geographical shift in global value chains in a number of sectors. “We should now make India not just the preferred but the only destination for manufacturing. Industry is supporting the government on all possible fronts,” he says excitedly.
What Industry Wants?
Kolkata-based diversified business conglomerate ITC has already sought more clarity from the government so that manufacturers can operate with ease amidst the lockdown. Speaking to reporters through a video conference recently, ITC Chairman and Managing Director Sanjiv Puri said the coronavirus pandemic will have a significant impact on the economy as well as on the company in the first quarter of the current fiscal, but it is difficult to make a business forecast at the moment.
“What would be helpful there is that some clarity on where manufacturing can be allowed? There are some definitions that are being put, but the reality is that most of the manufacturing units are in the perimeters of urban centres. Those need to be allowed (to function),” said Puri. He was responding to a query on what more steps are required from the government for industries for hassle-free resumption of manufacturing activities during the lockdown. ITC has a total of around 120 manufacturing units, including third-party owned, and according to Puri, 70-80 of them were functioning with capacity utilisation ranging between 20 per cent and 60 per cent.
Once the lockdown ends, one of the most crucial things the industry expects from the government is to make sure that the ‘physical supply chain’ operates seamlessly. “As a country, we would have to issue clear guidelines on the movement of goods. States, businesses, and industry bodies would need to work together to make this happen,” says Chandrahas Panigrahi, CMO and Consumer Business Head, Acer India, which makes laptops, desktops, tablets, smartphones, monitors, among other products.
S. Ganesh Mani, Director, Production, Hyundai Motor India says the automotive sector basically needs help from the central government in three key areas — financial support, scrappage scheme and help with taxation issues. “First and foremost is finance, that is critical to the dealers so that they can manage their inventories and costs. The government is considering relief for the medium and small enterprises and most dealers fall in that category,” says Mani. It is also critical that consumer finance continues strong, since financing accounts for 80 per cent of car sales. “The government would consider a measured scrappage scheme as that would spur demand,” adds Mani. Another major aspect is ‘taxation’ over which the majority in the automotive sector feels that a cut on excise duties will certainly leave more money in the hands of the consumer.
Sanjiv Paul of Yamaha Motor would have nothing less than a bailout package. “The government should announce a bailout package for the auto sector,” he says. And why is that? “Because the auto sector is one of the major contributors to the GDP of the country.”
Explains Nishant Arya of JBM Group, a $2.2 billion diversified entity, “Like in 2008-09 when the government had reduced excise duty in the auto sector, now it may reduce GST from 28 per cent to 18 per cent.” It is evident that April-May may not fetch any revenues for OEMs. “In such a scenario, the workers’ salary may be paid out through various funds like ESIC for a brief period of time so as to de-burden OEMs to some extent,” says Arya. JBM Group has presence in multiple domains such as automotive, engineering & design services, renewable energy, railways and OEM.
Sriram Ramakrishnan of Fuji Electric says credit facility for industries should be made available easily and at lower rates. “This will encourage them to move forward with their expansion plans. In addition, the government must release due and overdue payments for all government projects and also consider some advance payments for upcoming projects which will help ease the cash flow in the market,” he says.
K.K. Shetty, MD, Citadel Intelligent Systems wants the government to help meet working capital needs and provide electricity subsidy which, he says, will help the industry bring down their operating cost. “Deferment of GST will help the sector to get back in shape,” adds Shetty. Citadel Intelligent is the provider of customised fiber optic interconnectivity solutions.
The livestock feed manufacturing sector, however, has very specific demands. Amit Saraogi, Managing Director, Anmol Feeds wants waiver of minimum electricity charge and electricity duty, simplification of labour laws (also demanded by several other categories of manufacturers), and government help in providing compound feed to beneficiaries at subsidised rates or even free for a certain time period at least. “The government can extend microfinance to help small farmers in poultry and fish trade to restart their livelihood with more liberal terms and conditions,” adds Saraogi.
India as a Manufacturing Hub
There is a general feeling in industry that India must take advantage of the opportunity thrown by the US, Japanese, South Korean and other companies trying to move out of China to establish their manufacturing bases elsewhere. “To do so, infrastructure blockage and the slow approval process must be dealt with efficiency. Only then can India replace China over the next two to three years,” says Panigrahi of Acer India.
Shetty of Citadel Intelligent Systems proposes a unified command and control for attracting foreign manufacturers: “We need to have a clearly defined process in one single agency just like the GST council. Having something like an industry council (a single point agency) with participation from various states. This structure with a nodal agency will receive all the applications from start-ups or international companies coming to India,” he says.
Mani of Hyundai Motors feels that with a strong digital ecosystem and abundance of talent, India is in a unique position to recast the framework of manufacturing. “But this will require a quantum shift from a cost arbitrage mindset to value arbitrage,” he says. “In addition to the current policies that aid ease of doing business, additional incentives and a favourable tax regime are required to capitalise on the current opportunity to attract investment,” Mani suggests.
Paul of Yamaha Motor says India needs to improve the quality of products. “We also have to work on matching the cost of production with other Asean countries.” Experts believe India will remain one of the preferred destinations for overseas companies due to its larger market, and cheap labour pool.
Arya of JBM Group says Covid-19 issue will have a positive impact considering the growing bilateral ties between India and Japan, Korea, and the US. “Aditionally, the government can come up with new tax brackets to promote new companies to invest in India in sectors such as automobiles, textiles, high-tech manufacturing, EVs, etc,” he adds.
Ramakrishnan of Fuji Electric says the government should also identify targeted manufacturing segments like electronics and ensure that a complete ecosystem of suppliers is developed to improve self-reliance and localisation of the supply chain in India. Fuji Electric, an energy and power electronics major, manufactures a wide range of products from AC drives, motion controllers, PLCs, DCS, HMI, semiconductors and field instruments.
For Oliver Mirza, MD and CEO of Dr Oetker India and SAARC, India is still a lifetime opportunity. “We invested in India with a long-term perspective. Even though there is a temporary slowdown, we are convinced the Indian economy will bounce back in a greater manner,” he says.
With global companies looking to establish manufacturing units India, there can be a huge demand for minerals, says Sauvick Mazumdar, CEO, Vedanta Sesa Goa Iron Ore. “The industry can provide extensive employment opportunities and can also contribute in copious numbers to the state’s revenues and overall development and welfare of the communities,” he adds.
Sood of Assocham refers to a plan that was discussed at a meeting on 30 April between Prime Minister Narendra Modi and state chief ministers. “It was suggested that a scheme for ‘plug and play’ infrastructure in the existing industrial estates/plots be announced. This is an excellent idea and the quickest way forward to encourage re-location of manufacturing to India,” says Sood.
Now all eyes are on the central government. All decisions, regulations, guidelines, financial package and a whole gamut of initiatives need to come from those at the helm. India Inc. can only hope, pray and write for help.