It’s lose-lose across the region

Vijay C Roy in Chandigarh

For the last few years, it was an annual practice for Ludhiana-based New Swan Group to hire at least 10 per cent of its total workforce in the third quarter of the fiscal year. A manufacturer of auto parts and agricultural implements, the group was forced to do hiring, especially during the festival season, as the migrant labourers would return home to their respective states. This year, however, the group has not hired even a single person. Reason: slowdown in demand.

“The industry in Ludhiana faces labour shortage during this period as migrants from Bihar and Uttar Pradesh head home. To meet the shortage, we hire around 200 people. However, due to the slowdown in auto and agriculture, we have not done any hiring this year. The demand has gone down by 15 per cent,” said Upkar Singh Ahuja, MD, New Swan Group.

The manufacturing sector in Punjab is predominantly MSME based, with units mostly involved in outsourced production and manufacturing works. As such, the tiny and micro units are facing an acute crisis as there is no work due to the slowdown in demand. Many are cutting down production due to lack of liquidity and weakening consumer demand. The slowdown in production is clearly captured in the GDP data. India’s July-September growth rate fell to 4.5 per cent, the lowest in more than six years, compared with 7.1 per cent for the same quarter in 2018-19. This was mainly on account of weak manufacturing sector, falling consumer demand and private investment and a drop in exports due to a global slowdown.

In the previous quarter (April-June 2019), growth had stood at a seven-year low of 5 per cent, against 8 per cent Q1 growth a year earlier. While the auto sector has faced the biggest jolt due to decline in consumer demand, sectors such as apparel are facing the heat of the slowdown too with many having reduced the number of average working hours from 12 to 8.

Engineering goods

According to Society of Indian Automobile Manufacturers, between April and September 2019, around 11.7 million vehicles were sold in the country as against 14.1 million vehicles sold during the same period last year. As the demand continues to remain under pressure, the engineering goods and auto component manufacturers in North India have started feeling the heat.

The repercussions are visible across the spectrum with ancillary units cutting production by 10-20 per cent to avoid inventory pile-up. In addition, several units have put their expansion and modernisation plans on hold.

With over 10,000 units, including micro and small, the region comprising Punjab, Haryana and Himachal Pradesh is a major hub for auto components. It meets nearly 30 per cent of the country’s demand, with Haryana having the maximum number of auto component units in the country. Industry experts indicate that a prolonged slowdown could have a severe impact on India’s overall employment figures. Manufacturers like Ahuja expect things to start improving only from the next fiscal year.

Textile and apparel

Meanwhile, cotton mills in the region are grappling with the twin challenge of weak export and uncompetitive prices. The production has come down by 25-30 per cent. “Perturbed with the dwindling demand, spinning mills have curtailed production. Working days have been reduced from seven days a week to five or six,” said a senior official from Northern India Textile Mills’ Association.

The Rs 50,000-crore textile industry of North India has specialised manufacturing clusters — Ludhiana in Punjab, Panipat in Haryana and Baddi-Barotiwala-Nalagarh belt of Himachal. With Bangladesh and Vietnam overtaking India in the apparel sector due to free trade agreements with Europe and the US, local manufacturers wish for similar pacts to boost exports, besides reduction in duty. “The sector has been the worst hit. Export is down by almost 2 per cent,” said Harish Dua, a Ludhiana-based manufacturer.

Real estate

Low consumer demand in the real estate sector has directly impacted thousands of daily wage workers, who have ended up without any source of income. In Punjab, especially in Mohali, thousands of flats are awaiting occupancy. In the absence of buyers, a lot of projects are on hold. Since the sector has not been doing well for some time now, it has had a cascading impact on allied industries such as bricks, steel and electricals.

Food processing

The impact of economic slowdown cascading onto different sectors is perhaps beginning to hit the food sector too. Earlier this year, biscuit giant Parle had expressed fears that it may have to lay off 8,000 to 10,000 following demand slowdown. Now, other large food processing players have also reported a slump in their volumes. “As a major chunk of the processed food in FMCG comes from the MSME sector, the latter is set to take a hit too,” said a senior executive working with a multinational in the FMCG sector. According to estimates, around 80 per cent of the processed food comes from MSMEs.