By Nikita Rana
The Purchasing Managers’ Index (PMI) for manufacturing was recorded at 51.8 in March, which is a four-month-low for India. After the nationwide lockdown all manufacturing firms except for those deemed essential have shut down. Demand across sectors has understandably fallen and exports have come down due to movement restrictions and lockdowns in other nations. Amid all this, ET-ILC member companies are working with the government to ease necessary regulations and focus on safeguarding assets and employees.
Brenntag India which is in the chemical distribution business and caters to a wide array of companies in the food, pharmaceutical, home-care, coatings, animal nutrition, lubricants, agro and electronics sectors it is concentrating its energy on getting its essential supply chains running. “The government has classified pharma and food as essential, so those firms are allowed to run. But there are a lot of allied businesses, related to these who need to be functioning, so that these essential items can be produced. For example, you need packaging materials, labels, bottles for many of these essential items but we’re still in the process of getting approval for these categories. We’re constantly talking to the government. In many cases, they have realized the issue, but we’re waiting for final permits to come in. Our operating capacity is currently below normal levels, due to measures in place to control the spread of the Coronavirus and due to the shutdown in those industries deemed non-essential by the government,” says Balakrishna L, MD, Brenntag Ingredients.
Lanxess, a German specialty chemicals company that supplies to many critical industries including pharmaceutical, agrochemicals, FMCG, refinery, food etc. and has manufacturing sites at Nagda in Madhya Pradesh and Jhagadia in Gujarat, says that it has been able to get permissions from the authorities to operate both its manufacturing sites at lower capacity utilization but with conditions. “We supply various products to a host of industries deemed as essential services, both in India as well as for exports. A number of our products are certified for use globally. Since we have a global customer base who depend on us, for example, there is essential demand for our ion exchange resins from the sugar industry in the US. These companies have had to face significant production challenges because the supplies from us were disrupted,” says Neelanjan Banerjee, Vice Chairman and MD, Lanxess India. The company’s manufacturing sites are operating at significantly lower capacity utilisation and output due to the restrictions in place and the fact that logistics and supply chains are severely impaired due to the shortage of truck drivers and critical raw material. Packaging material suppliers having closed down and warehouses are also not operational. It is extremely difficult to run chemical operations smoothly even at low capacity, in the absence of a fully functional supply chain. There are also severe challenges with high volume co-products like hydrochloric acid because critical end user industries are closed. Due to the fact that several state and district borders are sealed, companies are facing issues in collecting raw-materials or even in supplying to customers who may be across state lines. The shortage of labor across the country for key tasks like the loading and unloading of trucks has compounded the problem.
For manufacturing firms who are deemed non-essential, there are other challenges. Sudden shutdowns and absence of maintenance staff could be damaging for the plant machinery. “I am extremely happy with the way the government has responded. They have been very proactive. Companies were quickly able to get permission to bring in 1-3% staff just to maintain the plant, regulate the air conditioning and make small interventions. In manufacturing, you can’t completely shut down. Many products are perishable. Apart from making machine tools for the automotive industry, we do make some critical components for aerospace, defence and oil and gas and even export to Russia but at the moment our production has come to a complete halt,” says Ravi Raghavan, MD, Bharat Fritz Werner. The industry is appealing for permission to execute export orders. These are difficult to win and require special permits, so if Indian firms who already have these critical export orders are unable to deliver, they will find it difficult to re-establish credibility with international buyers.
Panasonic Life Solutions that has a turnover of Rs. 4000 crores says that the slowdown has had no impact on its business as yet; though it lost out on March sales which are normally the highest. For the last three years, it has been growing by 14% even though the construction industry, a large buyer, has slowed down. “With the lock-down, we will have to reassess our goals and targets. If we can operate again in May, we can manage substantial growth. But if the lock-down continues for an extended period, then things will be different. The construction industry is going to show slow growth due to cash flow constraint, reluctance of new customers and defaults of EMI payments of existing customers. There will also be a 2-3 month lag post opening up of the economy due to labour being unavailable ” says Dinesh Aggarwal, Joint MD, Panasonic Life Solutions. The company is looking at new avenues for growth. It is increasing its B2B business and exports to South Asia and the MEA region, catering more to the government and increasing visibility in modern trade.”
In the current environment it is the MSMEs that are struggling the most. With banks either unwilling to lend to them or giving them loans at very high interest rates, and with their large dependencies on one sector or client, many are on the verge of collapse. “In the recent past there was a huge push for MSMEs to increase capacity. So whether it is Maruti Suzuki’s new plant in Gujarat or Kia Motors’ new plant in Andhra Pradesh, they all have excess capacity. Unfortunately this happened across the sector and just below there was a slowdown in the sector. The private sector and the government need to come together to find a way to use this capacity. We’re still importing so much for the defence and infrastructure sectors, some of that should be moved to local manufacturing, but this needs a multipronged approach,” says Ravi Prayaga, MD, JI-Technovation which is Japan India Technology and Innovation joint venture and works largely in the area of robotics and automation.
All these companies are making efforts to support migrant labourers, improve operations and work with the government to ease pressure. While Lanxess has donated 1.1 tonnes of it’s product, Virkon which can be used to make 100 tonnes of disinfectant and donated Rs. 2 crore to the PM Cares Fund, Bharat Fritz Werner has offered space for a quarantine facility and Panasonic Life Solutions has set up a helpline for employees. These companies believe that Indian manufacturing would benefit tremendously with a creation of clusters for co-dependent industries, a reduction in GST, investment to make firms more globally competitive, export incentives and a focus on importing less and encouraging Indian firms to manufacture domestically.