Covid-19 outbreak: India Inc plays safe, despite lockdown norms being eased

Demand slump, labour shortage put a damper on ramp-up

Even though the Union government has permitted further relaxation in the lockdown rules from Monday, India Inc is on a wait-and-watch mode to restart manufacturing and service operations or ramp up production. 

From automobile majors and soft drink bottlers to cement companies, a large section of the industry sitting on a huge inventory is hesitant to open up when there’s no sign of demand growing. 

Shortage of labour and a broken supply chain are among the other hurdles for many key sectors. But there are others, such as cab aggregators and garment export hubs like Tiruppur, who are ready to resume business as lockdown 3.0 kicks in. 

  

While most auto companies are undecided about starting production immediately, Hyundai Motor India struck a contrarian note on Sunday by announcing it would restart preparatory operations in the Irungattukottai factory on May 6. 

Among others, Toyota Kirloskar Motor Vice-Chairman Shekar Viswanathan said, “We may start production by the third or fourth week of May, but nothing has been decided as of now. The bigger question is whether there is demand for vehicles. We don’t know if the consumers who have booked vehicles will take delivery.”

Even Maruti Suzuki, the country’s largest auto player, is adopting a cautious approach. Though the company had earlier been permitted to run its Manesar plant (but not Gurugram), it had decided to wait till matters were clearer. Under the new, relaxed rules, its Gurugram plant can also be opened up. But, says Chairman R C Bhargava, “Permission to open both factories is only one issue. We are figuring out how many of our vendors are not in containment zones, so they can also start production. Also, we have inventory of one month, so not only should dealers be open, but consumers have to be able to come there and buy. Then there is the logistics of transporting cars. Our team is working on all these aspects before a decision is taken. Surely we are not opening on Monday.”

 

 

Bajaj Auto cites the notification of the Maharashtra government, which limits manufacturing at Chakan in Pune, where the company has its main plant, to only essential products. Says a top executive at Bajaj Auto: “Opening up seems impossible.”

Similarly, Volkswagen Group has decided not to resume production for another two to three weeks. A spokesperson of the group said, “We will first get workers to do some construction, which is required for the plant to start again. Then we will get employees who can take care of the despatches. Then we will figure out the suppliers, and finally, we will resume production.” 

Strict state rules on opening up have also impacted the Noida-Greater Noida industrial belt, which houses over 12,000 manufacturing units, including such big consumer electronics and mobile phone companies as Samsung, LG, Vivo, and Oppo. Company executives say that till Sunday, the district administration had not given them the green signal to start production. LG says if allowed, it is fully prepared to resume operations in days.

In other areas, lack of demand is forcing companies to refrain from opening up. For instance, large bottlers for soft drink makers Coca-Cola and PepsiCo have not opened their factories because of low demand in the peak season. Says a senior executive of a soft drink multinational company, “Forty per cent of our sales happen in April-June, for which we stockpile in March, so that there are no shortages. Yet April has been a washout in terms of sales. There is no economic logic to keep plants open.”

For most manufacturers, lack of demand is a serious challenge. Even steel companies, which were always allowed to run as they were in the essential list, say that their units are facing demand issues. Says T V Narendran, managing director (MD) and chief executive officer (CEO), Tata Steel, “We are operating at 50 per cent production levels and may increase it to 60 per cent. 

 

But the major challenge is sales. We need our customers to get started. Operations is not an issue — sales are.” There is also the fear that shortage of labour will makes it tough to ramp up production. Transmission company KEC International, which has factories as well as projects across the country, started operating from the middle of April. But, as Vimal Kejriwal, the company’s MD, points out, “We had over 30,000 contract workers across the country in 60 projects. 

Now we have 16,000 and we expect that with trains being put into service to take migrants home, another 10-15 per cent will leave. So there will be an issue in ramping up operations. Will they come back, is the key question.”

Others echo that concern. A CEO of an auto company says: “It is directionally wrong to open factories on the one hand and send labour home on the other.”

A similar problem is seen in the construction sector. Telengana Chief Secretary Somesh Kumar pointed out to the Centre on Sunday that the construction sector, which has been opened up, is heavily dependent on migrant labour from several states, including Bihar, Uttar Pradesh, Rajasthan, and West Bengal. With special trains being run, migrants are rushing to go back home, making construction very difficult to start.

On the positive side, ride-hailing companies are gearing up to run in the orange and green zones. Uber India plans to start services in these zones from Monday, covering around 32 of the 50-plus cities where it operates. Garment exporters in Tamil Nadu’s Tiruppur, which is in the red zone, too, got a lease of life when the state government allowed factories to open up with 50 per cent of the workforce and export and sampling units with 30 per cent.  Says Tiruppur Exporters Association President Raja M Shanmugam, “We can start production at once, as all the infrastructure is in place. We need only 40 per cent of the workforce to make the samples which need to be shown to our clients abroad to get firm orders.”

Tiruppur exports over Rs 25,000 crore worth of textiles every year.

With additional inputs from T E Narasimhan, Arnab Dutta & B Dasarath Reddy