Print Friendly, PDF & Email

RSTV: THE BIG PICTURE- WAY FORWARD FOR MANUFACTURING SECTOR

RSTV

Introduction:

The government has taken steps to ease conditions for the manufacturing sector to resume operations. The steps include allowing industries outside limits of municipalities and municipal corporations to start operations, freeing up transportation of goods and setting guidelines for the movement and stay of labour. This could help companies to re-start operations. Companies, who had cut production, can now plan to bring back operations to normal levels.

Issues of manufacturing sector amid Lockdown:

  • India’s manufacturing activity contracted at its sharpest pace on record in April as a lockdown to combat the rapid spread of the coronavirus led to a slump in demand and massive supply chain disruptions
  • Asia’s third largest economy is taking a huge hit from the ongoing nationwide lockdown, which started on March 25, and its gross domestic product is expected to shrink for the first time since the mid-1990s this quarter
  • Record contractions in output, new orders and employment pointed to a severe deterioration in demand conditions.
  • With new orders and output shrinking at the steepest pace since at least early 2005 factories cut jobs at the fastest rate in the survey’s history, signaling a high chance of recession.
  • A record slump in both input and output prices, suggesting a sharp fall in overall inflation which has held above the Reserve Bank of India’s medium-term target of 4% for six months, failed to stoke demand
  • Enterprises suffer from low productivity given that their small size and lockdown prevents them from achieving economies of scale.
  • The jobs the small enterprises create are low-paying ones.
  • Numerous regulatory roadblocks, unfavourable land and labour laws, inadequate transport, communication and energy infrastructure, among others.
  • India faces stiff competition from South-East Asian and other South Asian countries.
  • Global technological and geo-economic changes.
  • Impact of a strong rupee in recent times on Indian industry and the economy.

MSME Sector:

  • The Micro, Small and Medium Enterprises (MSMEs) are literally the backbone of all Indian sectors and often engaged in manufacturing and export activities — two key drivers of the Indian economy.
  • Almost all MSMEs are out of action due to the lockdown, chocking all production activities at major firms across sectors. There are several reports that indicate how MSMEs are reeling under crisis and have no money to pay their employees.
  • From leaders to experts and industry bodies, everyone has appealed the government to increase its relief package for the MSME sector, which contributes to over 30 per cent of India’s GDP.
  • It is worth mentioning that a majority of the small units may have to shut shop if they do not get a relief package soon.
  • The world is going through something unprecedented. Nearly a third of the globe is in lockdown. Due to this lack of trade and shrinking sales, MSME’s are feeling the burden of loans, repayments, GST filings, etc.
  • Even after getting support from the government, many of them are almost on the verge of losing their control over losses and unable to generate revenues as well and fighting for their survival.

Opportunities For India:

  • There are, however, opportunities that appears to be emerging.
  • While there is hope for a quick recovery in India, we have to make concerted efforts to realise this including an integrated multi-pronged approach through public policy support, private sector participation and citizens’ support.
  • This presents a huge opportunity for India as many Companies plan to shift out of China. We need to prepare the ground forthwith to welcome such investment into India. We need to try and make life easy for investors.

Way Forward:

  • It will be very important for the government to take initiatives and announce more relief packages.
  • The government to provide cash infusions that allow companies to give workers jobs and buy raw materials.
  • The government will also need to increase the insolvency limit for SMEs and MSMEs to 1 crore from 1 lakh.
  • India’s manufacturers could learn a lot from the IT sector’s experience in promoting the large-scale development of s
  • Continued focus on education will help attract foreign investment and also help the economy overcome the challenges.
  • Favorable market access policies
  • Investor’s confidence must be improved.
  • Improving physical infrastructure from transport systems to the power sector is essential.
  • Enhancing the flexibility of labour regulations.
  • FDI policy requires a review to ensure that it facilitates greater technology transfer, leverages strategic linkages and innovation.
  • Attractive remuneration to motivate people to join the manufacturing sector.