Front end demand creation has to happen. It has to start from the consuming point. The buyer has to return to the market.
The entire ecosystem has to function. Just starting a production unit is not going to be adequate.
Harsh Pati Singhania, Vice Chairman & MD JK Paper and Director JK Organisation, spoke to Mint for the CEO Speaks series regarding how the diversified business group had been impacted by the nationwide lockdown as well as subsequent relaxations granted by the central government from 20 April. Singhania said that a number of businesses had restarted and sales had begun, but low consumer demand is looming as a big challenge for industrial production.
How are you gearing up for restart of business post the relaxations in the lockdown from 20 April?
Initially during the lockdown everything got shut except for our dairy and seeds business. What has happened since then is that some of our plants have started functioning at different levels of capacity. But there are several which will wait before they start. Our paper mills, Unit JKPM & Unit CPM have started production. We have started production partially in our Cements business and our Packaged foods business has restated. I think there is a very gradual improvement in the movement of materials. Still I think 30% or less of trucking capacity is operating. Certain areas some economic activity has started. Because of the long shutdown there may be shortage in certain areas which could lead to some pent up demand, but that may not sustain. Exports are also moving including paper as well as agri business.
But obviously there will be a significant impact across businesses. You have more than 4-5 weeks of no production and very little revenue coming in. The real issue is that the whole chain has to function. If there is no matching demand you will not be able to run factories. you will have to shut down. Front end demand creation has to happen. It has to start from the consuming point. The buyer has to return to the market. The entire ecosystem has to function. Just starting a production unit is not going to be adequate.
The emphasis and submission is we need to start the entire ecosystem. Some phasing is inevitable and understandable. Most of the major metros are in confinement. There the consumers have limited ability to buy. That would mean there will be backlog of materials or jamming of materials. Along with this (restart) there has to be liquidity and money in hands of buyers. In many businesses you can't do production below a certain level --there is a minimum rate at which production has to run.
Are there any policy concerns that you have on supply and distribution?
One thing that is very crucial is there has to be an integrated approach between centre and states. For example centre may relax some stringencies, but if states say we are going to continue stringent measures. then it won't work. What I understand is that there are efforts being made, but still certain states have declared lockdown which are at variance with centre saying there is partial resumption of activity since 20th April.
What kind of fiscal support are you seeking from the government?
Different industry associations have made a lot of submissions and the government is still working on it. The essence of all this is there has to be support given to all parts of the economy starting from consumers. This can be done through government mechanisms and it has to be both rural and urban. It has to cover trade, industry including MSMEs and also large businesses. Industries are having to pay salaries when there is little business. There has to be some support. Globally countries have come up with some support like reimbursement of salaries that industries pay. The RBI came in with guidelines on three month moratorium on loans and I believe that this will have to be extended. Especially as the period under lockdown has been extended , there has to be support.
There are a lot of government dues to industry which can be paid to industry. Today whatever we give can not come with so many strings attached that industry is not able to avail of that. End of day this is not an issue of some stimulus or something being asked. Its a natural disaster. If its a natural disaster you have to look at it as disaster relief. You need to save the economy in a way.
For business to come back to normalcy, it will take along time post covid. Just because government allows you to reopen the shop. are you going to get so many customers ? Customers will come based on their financial viability. its a cascading flow down the line. I would imagine it would take anywhere between three months to a year for normalcy.
How are you re-configuring your business ?
We are following all the prescribed norms and we will follow those wherever we restart. Even when office reopen they will reopen the same way. We have been looking at cost cutting where we may cut down certain capex programs, and only very vital ones will be undertaken. We are rethinking our ways of doing business. New channels that are emerging for dealer distribution such as ecommerce and other innovative ways of making delivery to customers needs to be looked at. There will be greater emphasis on IT. Can some people permanently work from home? Do you really need to travel so much to discuss ? are to be seen. We also used this time to upscale people and employees in terms of training programs and employees.