Working capacity at 25% may be unviable as industry awaits end of lockdown

DPIIT had recommended that big companies in textiles, automobiles and electronics could start production of up to 20-25 per cent capacity in one shift, to begin with.
Amid concerns in some sectors, like auto, that a staggered opening up of manufacturing capacity to about 25 per cent could be unviable, broad swathes of the industry are readying strategies after the possible partial lifting of lockdown post April 14.

 
These include textiles, mobile device manufacturers, chemicals and cement.

 
The department for promotion of industry and industrial trade (DPIIT) had written to the home ministry a few days ago detailing out a path for staggered lifting of the lockdown in industry and extend it beyond just essential products.

 
It had recommended that big companies in textiles, automobiles and electronics could start production of up to 20-25 per cent capacity in one shift, to begin with. All eyes are now on Prime Minister Narendra Modi, who is expected to announce some relief for the industry on Tuesday.

Auto component vendor Nippon Paint India said that at 25 per cent capacity, it will not even meet plant overhead costs, leave alone company overheads. Sharad Malhotra, the company’s president of automotive refinishes and wood coatings, said, “For us to run a viable unit, we need to produce around 60 per cent, and even then, the margins are small. However, once we are allowed to open, we will use it to complete some of our urgent export orders. And, we hope we can move to 100 per cent in a few weeks.” A top executive of a leading passenger car company in north India also agreed that producing cars with such limitation would be a challenging.

Cement manufacturers like Shree Cement would prefer to wait and watch rather than rush in. H M Bangur, managing director of Shree Cement, who prefers to wait for a week before he takes a decision to open his plant, said, “There are two issues – demand for cement is not there as construction is put on hold and all expenses of capex are getting deferred. Secondly, there is a big issue on logistics.”

 
Bangur added that workers are unwilling to come to the factory. So, he will wait before taking a final call.

 
Mobile device manufacturers are in sync with the government plan for staggered production. Hari Om Rai, director of Lava Mobiles, one of the leading Indian manufacturers, said, “The 25 per cent utilisation of capacity is fine with us. It will also help us in gauging the demand for mobile phones from consumers which I believe will also go up gradually.” So, instead of about 3,500 workers, Lava would initially run its factory with 600-700 staff, which is the minimum threshold required for production.

Garment exporters in Tirupur, who were asking the government to allow them to open their units with even a tenth of workers, are relieved. They feared that if they could not send samples to their clients, they would lose out to China and Bangladesh.

 
“Stores in the UK, EU and the US have been asking exporters for samples, to give approvals and place orders. At this moment, it is important for us to open the knitting, dyeing, compacting and calendaring units. The 25 per cent capacity limit is enough for us to address the samples and tackle fear psychosis,” said Raja M Shanmugam, president of the Tirupur Exporters Association.

 
Thermax, for instance, has already restarted its chemical factories as they were supplying to essential services like FMCG but with one shift instead of the normal three.

 
M S Unnikrishnan, managing director of the company, said, “For our equipment manufacturing units, which are in Gujarat, Maharashtra and Andhra Pradesh, even if the lockdown is lifted, we will restart operations gradually. We need to put in safety measures.”

 


Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel