Manufacturers reach out to govt for clarity, tweaks in lockdown norms

Topics Coronavirus | IT Industry | Lockdown

.Automaker Maruti Suzuki, for instance, is gathering details on how many of its 350-360 vendors and tier-2 and tier-3 suppliers (about 1,000) are located in the red zones
Large manufacturing companies have approached the central government, seeking clarification and relaxation of some rules in the new guidelines issued on Wednesday by the Ministry of Home Affairs, even as they decide when or if at all to open their units after April 20.

The new guidelines provided a broad road map for staggered opening up of more industries and factories across the country with stiff restrictions.  

Automaker Maruti Suzuki, for instance, is gathering details on how many of its 350-360 vendors and tier-2 and tier-3 suppliers (about 1,000) are located in the red zones and if there is any alternative supply source if these firms are closed.

Said R C Bhargava, chairman of the company: “We are doing a detailed evaluation on how many of our direct and indirect vendors might be in the red zone, where factories cannot be opened. If so, do we have an alternative supplier? After all, without any one of these components we cannot make a car.”  

Besides, Bhargava said, the firm would also need some of its dealers to open. “After all, we have to sell our cars. It is on the basis of this evaluation we will take a decision and the few days the government has given will help us prepare for it,” he added. Maruti already has a safety and hygiene plan ready for workers and the factory.    

The Society of Indian Automobile Manufacturers (Siam) and Automotive Component Manufacturers Association (ACMA) have received queries from members asking if only factories located in industrial estates and townships in municipalities will be allowed to open.

A senior Siam executive said: “Many of our members and suppliers are not in industrial estates or townships. So if you are an OEM (original equipment manufacturer) in an industrial estate and have some vendors who are not, how can you start production and vice versa”.

 “We are in touch with our customers, the OEMs, and resumption of our operations would be aligned to their commencing operations as well as the directions of local authorities,” said Deepak Jain, ACMA president. 

Jain added that the automotive value chain was complex and integrated and there are many variables that one needs to study before starting production. 

Many are also pushing for tweaks in the guidelines so that production can restart quickly. Volkswagen Group India’s Managing Director Gurpratap Boparai said it was not possible to house workers in factories or provide accommodation nearby, because at large plants there were thousands of workers, about 5,000-6,000 if vendors were included.

“For large factories like us, and the fact that most of these areas like Chakan don’t have much residential accommodation, it’s impractical to house workers on the factory premise. Also the rule that all the workers have to be verified by the police could take weeks and delay opening the factory. It would be easier to permit the company to verify them,” he said.

Many, like tyre manufacturer Ceat, will decide on opening factories on a case-by-case basis. Said Kumar Subbiah, its CFO, “The decision to open will be based on some considerations. As we closed factories abruptly, we have semi-finished products that have to be completed or sold in scrap. We also have inventory that needs to be liquidated before production. Third, we will complete export orders. Fourth, even if we get permission we will produce what we can sell and where there is demand.”  

Subbiah also said with social distancing rules and lower number of workers they will be using capacity at “sub-optimal levels” and meeting operating costs would be a challenge.

Raju B Ketkale, Toyota Kirloskar Motor’s deputy managing director, averred: “Surely cost of manufacturing will increase because of under utilisation of capacity.” The carmaker has decided to go for a gradual ramping up of production at its plant as it expects that workers will take time to return to the factory, located on the outskirts of Bengaluru.  

Even steel plants that had significantly rationalised production because of the lockdown (they were allowed to run because they were part of a continuous processing industry) are looking at scaling up, but cautiously.

An executive at SAIL said: “We have to see how industries like automotive, construction and engineering start. There are major issues with transportation, which are getting sorted. The major issue was customers were not lifting the material.”

Jayant Acharya, director (commercial, marketing, corporate strategy) at JSW Steel, echoed the views: “We are evaluating restarting our facilities in a phased manner and waiting for state guidelines.”

Vedanta, however, sees large potential for aluminum. Ajay Kapur, CEO of its aluminum and power business, said aluminum was a vital raw material in areas like electrical distribution, construction, aerospace, defence, and transportation. “It is particularly important to sustain production now since the country will depend on domestic production even more as other countries increasingly insulate themselves after Covid-19 (coronavirus disease),” he said.

Demand is not an issue for KEC International, which makes transmissions. Said Vimal Kejriwal, the firm’s CEO: “The offtake of products is not an issue for us as it is used for critical infrastructure”.

He said the firm could get rolling soon as it already had 30 days of raw material inventories and the plants were located in industrial estates. Kejriwal’s only worry was logistics. He said if that was not brought under control in 10 days there could be problems.      

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