prosaicview

Lockdown Diaries 7: A Hard Stop

A pharma unit

The factories shut down overnight. Then some started partially and some are hoping to start soon. But normalcy will take months, if not years.

 

According to the Annual Survey of Industries (ASI) 2017-18 report, there are 237,684 factories that operate in India and employ 15,546,100 people. The ASI counts as factories all units that are registered under Sections2m(i) and 2m(ii)of the Factories Act, 1948. That includes all units that employ 10 or more workers using power or 20 or more workers without using power. Thus the ASI counts both giant manufacturing units like those belonging to the Tata and Birla groups, Reliance Industries, ITC, HUL, Mahindra, Hyundai, Samsung and LG and, others of their ilk as well as tiny units. (The ASI 2017-18 is the last report that has been compiled. The report of 2018-19 will come out this year).

On March 25, every one of these establishments came to a grinding halt because of the nation-wide lockdown announced by Prime Minister Narendra Modi. The Prime Minister gave merely four hours to citizens and businesses to prepare for the lockdown. What followed was pandemonium in both homes as well as organisations.

A host of manufacturing companies had already been staring at a prolonged slowdown even before the Coronavirus threat cropped up. The automobile industry, which accounts for nearly 22% of India’s manufacturing GDP, had been in the doldrums for almost a year with sales dropping month after month. Consumer durables had also been feeling the pinch. Small and medium enterprises in a range of sectors were in trouble because of sluggish demand and high cost of finances. The only bright spots were FMCG and pharmaceuticals, which seemed to be doing just fine. The lockdown would prove to be the straw that broke the back of much of India’s manufacturing enterprises, especially the small and medium ones.

After almost 48 hours of chaos following the PM’s 8 PM lockdown announcement, some of the bigger companies that could prove that they produced “essential goods” could get permission from some states to start partial production.

It was not an easy task. First, the definition of “essential” differed from state to state. While food and medicines and hygiene products were considered “essential” in all states, state and local administrations needed to be convinced in some cases that a factory producing packaging and another printing the labels for the packages of essential goods should also be given permission.

Even within hygiene products, opinions varied on whether only soaps and sanitisers should be classified as essential or other things like toothpaste should also be given the nod. In foods, the question arose that while staples were definitely essential, would instant noodles or chocolates, say, make the grade?

The bigger problem was the attitude of some state governments. While Maharashtra, Gujarat and Himachal were responsive and quickly gave permission for restarting operations of whatever products they considered essential, others like Goa mulled over the matter for several days before they grudgingly gave permission. Finally, states such as Telangana and Assam took a harder line and decided no manufacturing permission would be given, points out Deepak Ganjoo, regional vice-president, Africa, Middle-East and South Asia for Essel Propak.

Essel produces the packaging that goes into a range of pharmaceutical and hygiene products and therefore could pitch to be considered an essential product. ITC and HUL, along with other big branded players in the foods and hygiene space as well as the pharmaceutical units managed to get permissions too, to restart units in a few states like Maharashtra, Gujarat, Himachal and others.

The permissions came with stringent conditions attached – the units would need to follow strict health and safety protocols, they were only permitted one or at most two shifts, with a strict cap on manpower. (Mostly, the units were permitted to operate with 30% manpower). The transportation of workers also needed a specific safety protocol to be followed. (Workers would have to be brought in a bus after checking their temperature before they got on, and only one in three seats could be occupied to keep the necessary gap between workers in the bus). Premises needed to be sanitised before and after each shift in some cases.

But these were big, organised players well-equipped to convince state administrations about the merits of their case. Smaller players, even if they were in the essential goods business, found the going much tougher. A number of SMEs who were into contract manufacturing of pharmaceuticals and other such products found that while they could produce things like sanitisers which were in short supply, they couldn’t get bottles and labels required to push them out to the market.

A Bhopal-based export-oriented unit had sent out a big consignment of sanitiser for some overseas clients. The sudden lockdown announcement saw his consignment stuck outside the Mumbai airport. He could neither send it on nor could retrieve it and repackage it to sell in the domestic market even though demand was high. He could not find a bottler and a printer of labels who were open so that he could supply in the domestic market.

Just being a producer of essential goods was not enough to keep a factory going even partially though. Sunil Rallan, chairman and managing director of J Matadee Free Trade Zone Pvt Ltd in Chennai points out that while technically a free trade zone was classified as an essential product, very few operators within that zone could carry on with their business. First, because of problems getting permission for labour, many of his clients in the zone had to stop working. Others found it impossible to ship products out, given the shortage of officials at every point – from those supposed to give export clearances to people who could load and unload at the dock.

In the first place, airports and ports, even if they were handling cargo, were severely limited because of the availability of labour. The lockdown had made it impossible for workers who stayed at a distance to come to work. And then there was the scare caused by the fear of Coronavirus which ensured that many workers simply refused to come to work even if they were nearby. Ten days into the lockdown, says Rallan, practically every unit in the zone was shut. Just a handful continued partial operations.

Because of the lockdown and complete halt in the movement of many crucial raw materials, a number of manufacturers of essential products found themselves unable to keep operating. Several pharma companies that depended on APIs from China found themselves forced to shut down when their inventory of raw materials was exhausted. Shipments from China were not coming in, and even those that had come in were not getting processed from ports or airports.

Baddi, in Himachal Pradesh, is considered a hub of pharmaceutical manufacturing. It was hit by a double whammy. First, the detection of several Coronavirus infections in the zone ensured that the authorities clamped down on any activity. Then, there was the problem of raw materials. It would be a full month before it started limping back to normalcy.

The problem of raw materials or components sourced from abroad cropped up in different units all across the country. A manufacturer of high-grade masks (N99) and air-purifiers, Air Ok Technologies is classified as an essential goods manufacturer. But the logistics of supply forced them to shut their plants. Even though most of the parts that go into his products are made in India, says Deekshith Vara Prasad, founder and CEO of Air Ok Technologies, a few parts come from China and other countries. This forced them to stop the factory temporarily though his R&D team is working to develop substitutes for those parts that can be manufactured in India.

Those who are not classified as essential products were hit much worse. Dollar Industries is a hosiery and knitwear company with units in various states and all had to shut operations when the PM made his announcement. Pallavi Gupta, vice-president of Dollar Industries says that there was no official notification before the PM’s speech but in Tirupur they had come to know from the local administration that factories might need to be shut. Dollar shut its operations but ensured that all migrant workers were housed and taken care of in the factory itself. The management runs the canteen three times a day, making sure that good food is served to the workers, she says. Some workers who lived in cities close by had left early in the morning of the March 24, but the rest were stuck in the factory itself. When the PM announced that the lockdown would be extended to May 3, Dollar has started team building and training for workers who are stuck in the premises. It is essentially bearing the cost of housing and feeding its workers even though its factory has been shut for over 30 days.

Dollar is not the only one taking care of workers even if the factory is closed. Quite a few companies have organised money and food for migrant workers though some have also pleaded their inability to do much as their factories are shut.

A month into the lockdown, some non-essential goods manufacturers have also managed to get permission from the states that are keen to ensure a semblance of normalcy and get at least some productive work going. A number of companies say they have received permissions to restart their units in Haryana, Rajasthan, UP, Punjab, Maharashtra, Gujarat and Himachal among others. There are reports that Maharashtra has managed to give permission to 20,000 units and they should start production soon, even if in a truncated form.

However, even among these, inter-state rivalries create their own hurdles. Haryana, for example, would not like workers who live in Delhi to come to work daily in Gurgaon because of the scare of the virus being spread.

Equally, a number of factory owners say that Tamil Nadu, Telangana and Assam have told them to keep their units shut until the lockdown is over. And some states have already extended the lockdown within their borders. Pallavi Gupta of Dollar, for example, doesn’t expect her unit in Tirupur to get permission before May 3. Ditto for Air Ok, which has an unit in Chennai. Even J Matadee Free Trade Zone CEO Sunil Rallan says it is unlikely that any semblance of normalcy returning before mid May at least.

Once permissions are granted, it takes roughly two to three days to get the unit up and running again, says a company that has two units in Gurgaon and one in Manesar. Apart from sanitisation and cleaning up of the factory premises, they need to get the workers ready and see how much stock of raw materials they have. Many factories used to maintain a raw material stock of seven to 15 days. Because permission has been granted only for partial operations, they say this raw material stock could last them up to a month or slightly more. But if the supply lines do not get normal by that time, they will again have to stop work.

There is also the scare that, even with all precautions, if any of their workers get infected, the whole factory would need to be stopped once again. Moreover, there is also the worry that they might be penalised if any of their workers get infected, even if they catch the infection from other places and not the factories.

Most producers have no option though. The need to get their factories running to keep paying salaries, the bills of their vendors and taxes to the government apart from repaying loans taken from the banks and other financial institutions.

A few of them say that India is headed for a supply-side shock apart from a demand side shock. There is enough inventory of finished goods in the pipeline to meet demand for a month or so after the lockdown gets over, but after that there might be problems if production operations remain severely hampered because of all the reasons ranging from supply chain problems to permissions from the government.

A number of them also say that a huge number of small and medium industries will go out of business if they cannot find finances to keep going. Their biggest grouse is that the FM has not announced a package or brought clarity about how the government plans to help the industry. And the only announcement made long back by the FM is so full of fine print that almost no outfit will be able to get going. A recent survey of business confidence showed that the index had fallen to its lowest since the aftermath of the global financial meltdown in 2008. India’s GDP growth forecasts has been revised sharply downwards by almost all economic agencies. Some even expect the manufacturing sector to slide into a recession.

Still, there is a week left and they hope that the RBI and the government will announce a relief package that will get the various sectors going.

Prosenjit Datta

Prosenjit Datta

Prosenjit Datta is former editor of Businessworld and Business Today magazines

Add comment

ten − 1 =