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Photo: Mint
Photo: Mint

Companies may take a year to recover

The manufacturing sector will continue to need policy support if the positive metrics are to be sustained

Optimism is gradually returning to India’s manufacturing sector, which took a severe blow in the initial months of the coronavirus lockdown.

Demand and production are, however, expected to rise in the second half of the fiscal year, heads of manufacturing companies said at Mint’s Pivot or Perish webinar on Thursday.

“We’re seeing green shoots in manufacturing, and the effort that the government has made to invest through MNREGS (Mahatma Gandhi national rural employment guarantee scheme) or spending programmes like the Gram Sadak Yojana are bearing fruit," Deepak Shetty, deputy chief executive and managing director at JCB India Ltd, said at the panel discussion. “Customers are grabbing these opportunities. It’s still early days but as investments into infrastructure continue and the festival season sets in, we expect the momentum to pick up. We still have to be cautious from the health point of view, and safety protocols should not be diluted."

On Thursday, the data regarding industrial activity in September brought some cheer. Manufacturing output expanded to its highest level in more than eight years. The purchasing managers’ index (PMI) for manufacturing rose to 56.8 in September from 52 in August, the highest mark since January 2012, according to data analytics firm IHS Markit. A reading above 50 indicates expansion.

The manufacturing sector, however, will continue to need policy support if these positive metrics are to be sustained. Aditi Kare Panandikar, managing director of Indoco Remedies, said India needs to build an alternative supply chain for the pharmaceutical industry that relies on indigenous manufacturing and is not heavily dependent on imports from China. “India used to have a great advantage in the supply of bulk drugs, and we lost that to China. During the lockdown, the government realised...indigenous manufacturing should be encouraged."

“The threat of covid will stay for at least a year and the pharma industry is using this to its advantage to launch covid products," Panandikar said. “We have an entire basket of products used for prophylaxis, and we have now launched products for covid treatment."

India’s medium and small enterprises suffered the worst, lacking the balance sheet heft to survive months of tight liquidity, low demand and a missing labour force affecting production. Suresh Khurana, CEO – polyester, Bombay Dyeing and Manufacturing Co. Ltd, said the company’s MSME customers are still struggling to meet working capital needs. “The textile industry’s demand growth is linked closely to GDP growth. The industry will have some more trouble to go through the next six months, based on how the festive season pans out. Assuming there isn’t a second wave of infections, we’re hoping things improve in six months to one year."

Manufacturing firms have taken advantage of the lockdown to focus on digitzation and automation, Rajkumar Ravuri, director, industry strategy–manufacturing at Salesforce, said.

“Our customers across manufacturing were hit hard as they were dealing with liquidity and cash-flow disruptions in the early days of the lockdown," he said. “We had discussions with customers looking at payment terms and deal cycles to understand their priorities. Especially as we moved into the second quarter, we witnessed a significant uptick. The majority of customers who digitized back in 2017-18 came out unimpeded through the crisis. Organizations that saw these concerns ahead of time were able to take strategic early warning measures."

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