Covid impact: 100 units close down at Chennai's Ambattur Industrial Estate

Dwindling orders, job cuts hit South Asia's largest SME cluster

Pointing to the idle machines and empty factory floors, Anand Raj, a supervisor at RMK Engineering, an auto parts unit at Ambattur Industrial Estate on the outskirts of Chennai, declares, “Recovery is a myth in the auto industry.”

Raj, who has a family of five, is nervous about the future. The owner of RMK Engineering, which supplies parts to auto companies like Ashok Leyland and Royal Enfield, has already told him that if the unit does not get orders by July 10, his job may be on the block.  

At least 15 out of 25 workers at RMK Engineering have been laid off in the last one year. 

Bhaskar, 50, who works for Mickrovenz, an automobile sector dealer, echoes Raj’s apprehensions. “Around 18 people lost their jobs in the last one year in my company. What happened to my colleagues yesterday could well happen to me.”

To be sure, the big automobile manufacturers are showing some signs of recovery. Ashok Leyland has posted a 169 per cent jump in total sales (6,448 units) in June 2021 over the same period in 2020. But this is far below the 12,085 units it sold in June 2019. On the other hand, the sales of Royal Enfield in June 2021 declined 1.90 per cent — to 35,815 units from the 36,510 units sold in June 2020.

Even if there has been a revival in the auto industry, it does not seem to have reached the likes of Raj and the small manufacturing units where they work. “The second wave turned out to be more deadly for us. We have not been getting any orders for the last four months, while our owner is paying lakhs of rupees as monthly EMI, in addition to a rent of Rs 1.5 lakh per month. And now, some of our clients have infor­m­ed us that there will be no orders for another four months,” says Raj. 

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Many workers in Ambattur Industrial Estate, the largest small-scale industrial estate in South Asia, have a similar story to tell. Amidst the clanging of metals and welding work, what’s palpable, too, are the woes of workers and owners of small and medium enterprises (SMEs), most of which cater to the automobile industry.

According to an industry source, at least 100 companies in Ambattur were shut down after the outbreak of Covid-19. “There units saw job losses to the tune of around 50-60 per cent of their total employees. Nearly 100 companies were shut down. Though they were struggling even before Covid, this was the last nail in their coffin. The majority of the SMEs that shut shop were auto ancillary units, owing to their lower margins and inability to diversify,” said the owner of an SME, requesting not to be named.

Other industries are also on the verge of laying off their employees. A N Gireeshan, managing director of Avon Seals, a tier-I supplier to major water pump players like Kirloskar, Suguna, Sharp and CRI Pumps, says that he may be forced to lay off some staff, at least temporarily, if the situation does not improve.

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“I am supplying products that are parts of water pumps. A major source of our business is in the water pump manufacturing belt in Coimbatore, which has seen a bad second wave. We are also stuck with a no-order situation. Besides, the prices of raw materials have also gone through the roof. We are not able to supply at the old rates that the companies had agreed to,” Gireeshan says.

An industry insider estimates that even if each company in the Ambattur Industrial Estate suffered an average annual loss of around Rs 1 crore due to the lockdowns imposed in the wake of the pandemic, the area as a whole would have posted losses of Rs 2,000-2,500 crore.

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However, M Balachandran, president of the Ambattur Industrial Estate Manufact­urers’ Association (AIEMA), says, “There is no official assessment in this regard. But I believe that the profitability of companies would have dropped by over 50 per cent because of Covid and there may be a considerable drop of around 20 per cent in Ambattur’s contribution to the government’s exchequer in the form of taxes.”

These numbers are alarming for Tamil Nadu as the turnover from the MSME sector accounts for 30 to 40 per cent of the state’s GDP. The state has 18 per cent of the total number of MSMEs in the country and the highest number of non-farm units.

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While workers at Ambattur Industrial Estate complain about job losses and salary cuts, a section of the owners is concerned about the shortage of staff. Gireeshan says that around 50,000 migrant workers out of the estate’s roughly 200,000 employees went back to their homes during the first wave. Of this, only around 25,000 workers came back, leading to a shortage of labour in some key sectors.

“After the first wave, there was a shortage of people. 

This time it was much better. Because of a better monsoon, tractor sales were also better and two-wheelers, too, were doing well,” says Balachandran, adding, “On the other hand, the commercial vehicles segment, exports and textile units have been badly affected during the current wave.”

This is last part of a five-part series 'MSMEs At a Crossroads', a series about impact of coronavirus pandemic on India's MSMEs.