India industries scale back operations on lockdown amid pandemic

Author: Priya Jestin

2020/03/24

MUMBAI (ICIS)--Key manufacturing industries in India are either shutting down and scaling back operations as a full-country lockdown was implemented to contain the novel coronavirus pandemic in the south Asian nation.

There are fears that the global coronavirus crisis could endanger recovery in Asia’s second-biggest emerging economy.

“The Indian economy which has already been facing a slowdown since the past few quarters saw growth slowing down to 4.7% in the third quarter of 2019-20,” the Federation of Indian Chambers of Commerce and Industry (FICCI) said in a report.

“There was a strong hope of recovery in the last quarter of the fiscal but the epidemic has made the recovery extremely difficult in the near to medium term,” it said.

At 04:30 GMT, the number of confirmed coronavirus cases in India stood at 482.

On 23 March, the country imposed a total lockdown across 75 districts spanning 31 states, with transportation and movement of people restricted and only essential services are being allowed to operate.

Under the countrywide lockdown, manufacturing plants across the  auto, smartphone, consumer electronics industries were ordered shut, while some fertilizer, chemicals and plastics firms will need to run at reduced capacity until the end of the month.

“A significant 53% of Indian businesses indicate the marked impact of the coronavirus pandemic on business operations even at early stages,” the FICCI said in a market survey released on 20 March, citing immediate impact seen in the tourism, hospitality and aviation sectors.

Manufacturing operations in India were affected by China’s pandemic-containment measures since late January as these caused delays supply of necessary raw materials for production, it said.

In India, some sectors like automobiles, pharmaceuticals, electronics, chemical products, etc are facing an imminent raw material and component shortage. This is hampering business sentiment and affecting investment and production schedules of companies.

In the auto industry, Maruti Suzuki, Hero MotoCorp, and Bajaj Auto have stopped operations at their factories until 31 March, while India’s largest tractor maker Mahindra & Mahindra suspended all operations on Monday. Other auto makers also announced suspension of operations by late Monday.

The shutdowns are expected to hit the component industry, with vendors being forced to halt  operations for the same duration.

Almost three-fourth of the businesses in our survey indicate big reduction in orders. Of these almost 50% indicate a 20% and more decrease in orders,” the FICCI report said.

FICCI is the oldest industry body in India with a membership of over 250,000 companies.

Many companies that announced the closure of operations have mentioned that they would wait for government orders and assess the situation before restarting production.

The Indian auto industry has been facing a severe slowdown over the past year due to weak demand, which will worsen amid the pandemic.

The FICCI report said that cash flow at organisations had also been impacted with almost 80% of companies surveyed reporting a decrease in cash flow.

The pandemic has also had a major impact on the supply chains of around 63% of the respondents who said that they were closely monitoring the situation and expected the situation to worsen further, according to the report.

A report by the UN Conference on Trade and Development (UNCTAD) on 4 March had estimated that the slowdown of manufacturing in China due to the coronavirus impact would have a trade impact of $348m on India, with around a $129m expected hit on its chemical sector.

The novel coronavirus emerged in China's central city of Wuhan late last year and has since spread to more than 180 countries/areas/territories, according to the World Health Organisation (WHO).

China has been a major market for many Indian products, including petrochemicals, and the pandemic had adversely impacted exports of these items to Asia’s biggest economy and the world’s second largest.

India also exports 34% of its petrochemicals to China. Due to export restrictions to China, petrochemical products are expected to see a price reduction, the FICCI stated.

Focus article by Priya Jestin

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