Industries Awaken but Barely Breathe – Unlock 1.0
As lockdown restrictions are gently lifted, industries reopen their eyes from a pandemic-forced-coma. A calculated exit from lockdown was initiated about 2 weeks ago in India to breathe some life into businesses that had to pull down shutters and to initiate cash flow in the economic framework amid the uncertainty caused by the pandemic.
However, a certain set of lingering woes ensured that the move wasn’t as invigorating for industries as it was intended to be. All shutters that reopened were of no avail as bosses and managers were still battling a worker crisis.
Let’s look at some numbers that throw light on the doldrums:
Industries hard strapped for cash are now having it worse due to the deficit in migrant labour. Despite being offered conveyance and transport facilities, the worker themselves are paranoid about travelling back to their respective workplaces amid the pandemic scare.
The above infographic shows that 130 districts have been categorized as red zones and unfortunately they lie in the most urbanised and industrialised areas of the country. Numbers indicate that ~41% of the economic activities & ~38% of industrial output are accounted for by these 130 districts.
McKinsey crunched more numbers and delved further into the matter to reveal that 27 districts in those red zones are high-infection areas, more urbanised than the rest and are the power houses of all economic activity – 33% of all economic activity happens here. Therefore, keeping these districts safe and somehow in a condition to operate is the key to unlocking the country’s real economic potential.
In such a state of easement, all districts except for containment zones are being opened up to function with limited manpower. Stringent regulations for the Covid-ravaged 130 districts allow only essential services sector to keep running in the urban areas and manufacturing in the rural areas. This makes ~66% of the national economy operational with about 107 unutilized non-farm workers.
To top it all, as of the end of last week, over 67 lakh migrants scuttled back home to 116 districts scattered all over India. Union Skill Development Ministry said that ~ two-thirds of this cluster went to 53 districts i.e. ~44 lakh workers! (Refer to the statistics above for the exodus split)
Shown above is the confidence of bouncing back of the manufacturing sector among some large economies and the recovery times anticipated for the same. Other major challenges currently haunting the industries are Shortage of material caused by a disrupted supply chain, demand drop due to changed consumer behaviour, lack of adequate cash flows and a crippled framework for planning.
Now the reverse migration is just one half of the problem here. Recently the honourable Finance Minister of India Mrs. Nirmala Sitharaman, announced a fiscal stimulus package in 5 tranches, totalling to a mammoth INR 20 Lakh Crore or ~10% of the Indian GDP. One of the trances was focused at helping out these migrants and one particular measure affected all MSMEs and not in a good way. The GoI promoted employment to the poor in their respective villages under MNREGA which resulted in the migrants earning a salary whilst being so close to home. Moreover, these migrants live in rented accommodations in their respective regions of work and if the factories cannot provide them sustainable accommodation the way GoI wants it to be, these helpless folk are left to the mercy of their landlords who also demand a lumpsum 3-month rent upfront. With resources drained and no income flow, this is also detrimental to the return of the migrant labour our economy depends on.
The above two issues in combination have led to the second half of the two pronged problem being faced by the MSMEs during Unlock 1.0 – the migrant workers are now satisfied in their villages and the scares of the Covid-19 as well as the uncertainty of their accommodation are discouraging them from travelling back to urbanised localities where they previously worked!
This has led to a slump in the supply side of the markets as well. Especially small industries are heavily reliant on such labour and in their absence, they are crippled and operational at low capacity. Should there been a demand surge in the days to come, these industries will not be able to shift to higher gears and increase throttle to match the demand.
Let’s quickly skim over the impact of the pandemic on various sectors:
|1||Retail||– Healthcare products see robust sales amid the panic as hygiene standards improve. |
– Efforts to beef up local brands as anti-China sentiments intensify
– Electronics (import-dependent) witnessing a huge spike in sales, imports had to be made more frequent as local production faces labour issue
– Fashion sales slump as consumers switch to online purchasing, offline retailers sweating. Local sourcing may increase the cost by 3-5%.
– Food industry sees zero revenue from footfall, < 20% of restaurants open due to inadequate preparation.
– Books & Stationary see zero offline sales, kindle and e-books see growth
RETAIL WILL TAKE A YEAR TO RECOVER AND ADJUST.
|2||Automotive||– Demand for cars drops by 67% from pre-COVID numbers (~85% drop YoY)|
– Component suppliers apprehensive as labour issues continue to haunt the automakers manufacturing at 30-40% capacity due to bearish demand.
– Used car segment expected to pick up due to struggling finances
NO DEFINITE SIGNS OF IMPROVEMENT IN COMING DAYS
|3||Infra||– Housing sales down by 75% from pre-Covid numbers|
– 33% drop in property sales YoY
– 20% sales growth expected in 2020-21.
HOUSING MARKET EXPECTED TO SHRINK, SHARE OF ORGANISED BROKERAGE TO INCREASE
|4||Power||– Heatwave in June decelerated power demand slump from 10.5% to 9.7%.|
– Demand drop continues to worry GENCOS and DISCOMS
SECTOR WILL RESUME OPTIMUM PERFORMANCE AS INDUSTRIAL PRODUCTION RESUMES AND COMMERCIAL OFFICES BEGIN OPERATING NORMALLY
|5||E-commerce||– GoI allowed the online sale of liquor thus opening up avenues in the hyperlocal model|
– Foray into alcohol delivery lucrative as states keen on driving liquor sales with higher duties
– State revenue from excise charged on liquor is the third-largest contributor.
THE ENTIRE BUSINESS MODEL WILL SEE REORGANISATION & SHUFFLING TO ADJUST WITH CONSUMER BEHAVIOUR
|6||Oil||– Petrol and Diesel prices at record high|
– Prices hiked for 14 consecutive days.
– State-owned companies asked to absorb shock of INR 1/lit
|7||Banking||– Disbursement to MSMEs shot upwards of INR 21,000 crore after the Fiscal Stimulus package spurred growth and sustainable operations of MSMEs.|
– PSBs have sanctioned INR 40,416 crore under the 100% Emergency Credit Line Guarantee Scheme announced by the Finance Minister (21,000 crores already disbursed).
– Banks have helped sustain 5,81,296 MSME accounts, SBI leads the way.
– India’s Forex reserves rise to a record high of USD 507.644 billion – reduced CAD & capital inflows are the main reasons.
– Gold reserves stand at USD 33.173 billion, says RBI
These issues are recurring across all segments of industries and still continue to deprive organizations of sleep. As the economic slump continues, companies are using this period of enforced inactivity to change their methods and to get their own house in order.
Voracious reading regimes coupled with a penchant for writing led me away from a glamorous yet mundane corporate career. When nobody's calling, the mountains always are - you'll invariably find me atop one.