The sudden nationwide lockdown has led to business activities in India coming to a screeching halt. To weather the unprecedented storm, companies must adapt to the new normal to ensure business continuity amid the COVID-19 pandemic.
By Potshangbam July
What was initially considered to be a health crisis, has now led to the country’s economy taking a massive beating due to the ongoing lockdown, which started on March 25. In the third phase of the nationwide lockdown (at the time of writing this story), the Indian government announced some relaxations across the country, but curbs will continue in the containment zones. Areas have been categorised as red, orange or green, based on coronavirus risk profiling. Experts in the industry express their fears that a country like India cannot afford to go through a prolonged lockdown that lasts for months. This will lead to a longterm economic disaster that will be difficult to recover from. According to a private sector survey, India’s manufacturing activity contracted at its sharpest pace on record in April, during the lockdown. The questions that arise are—is it possible to lift the lockdown completely considering the possibility of the virus resurging, as countries like Singapore experienced when they relaxed stayat- home rules too early; and how can a country like India avoid the imminent economic tragedy?
This article attempts to delve deeper into all aspects of the crisis, with views from industry leaders on how to operate businesses in new adaptive ways, what the focus areas ought to be, what measures the government should roll out, etc.
Key challenges businesses face amid the COVID-19 pandemic
In response to the COVID-10 pandemic, the government did make a few interventions to ensure that businesses and the Indian economy do not collapse, but these do not seem to be enough. However, the long shadow of uncertainty still looms large. The harsh lockdown has already unleashed a devastating blow to the economy, and recovery may take some time. Things are still not clear enough to predict how long it will take to restore normalcy and get the economic environment alive and kicking again. But the profound implications have already been felt with disruptions in every aspect of business, such as cash flows, lack of revenue, scarcity of raw materials, price fluctuations, as well as disturbances in demand and in supply chains.
Rajoo Goel, secretary general, Electronic Industries Association of India (ELCINA), says, “First, there is a disconnect between the orders issued by the Centre vis-à-vis those issued by state governments, and industries are caught in between these two separate interpretations. Second, arranging private and dedicated transport for workers, additional insurance for COVID-19 related sicknesses, and accommodation and food for migrant workers in the factory premises are tough challenges to overcome.”
The Central government has issued a mandate that employers in all industries and establishments must pay full wages to their workers during the lockdown period. This applies not only to permanent workers of an establishment but also to contract and inter-state migrant workers. With regard to these financial obligations, Goel explains, “As there is no cash flow and with none or negligible sales and revenues, it is almost impossible for companies to continue paying full wages which account for 15-20 per cent of their costs. The ESDM industry in India operates on wafer thin margins, and it will be difficult for manufacturers to pay employee costs for this period. The government must reconsider this issue and find a way to support workmen and also enable companies to survive without reaching a stage of bankruptcy.”
Goel adds that another anomaly is that the Home Ministry and the Ministry of Shipping and Civil Aviation have clearly instructed port authorities and warehouses not to charge demurrage during the lockdown period as it is not possible to follow strict timelines for export and import consignments. Such delays are a case of force majeure and industry must not be penalised for the same. However, this is not happening in most cases and needs to be addressed.
Besides, there are raw material shortages due to supply chain disruptions worldwide, says P.S.S Suppiah, director OEM/CM, Supreme Components International. Cash flow is another challenge. And there are limited shipping facilities available around the world due to the grounding of flights.
Around the world, life has changed drastically. Our nation of 1.3 billion citizens is facing the challenge of a lifetime. The pandemic is threatening not only healthcare systems, but also the businesses and livelihoods of citizens. It’s now important to prioritise health as well as the economy.
Sharing an interesting observation post the pandemic, Rajiv Batra, managing director, Rabyte Electronics Pvt Ltd, says, “We will have to face multiple hurdles post this pandemic, like labour
unavailability, raw material shortages, cash flow issues, low market demand, finding safe ways for staff to commute and for the movement of goods – all of which will hamper the start of business.” He highlights that manufacturing in India will not take off soon after the lockdown rules are relaxed due to an acute shortage of workers who have returned to their home states. The industries primarily depend on outstation employees and they may need some time to return to work. The price of raw materials and transportation charges will also be higher.
|Key areas where the government must act urgently
What are the possible adaptive solutions?
The challenges posed by the coronavirus are not easy to deal with. To stay afloat in the current scenario, tactical steps should be taken to accelerate momentum towards new ways of working. Businesses need to adapt quickly to combat these challenges.
Stressing that all businesses, including manufacturers, have to work towards a new normal, Goel says that to keep COVID-19 in check, using digital platforms for remote working is going to become the way to work in the future. This will impact the way customers behave, how supply chains function, and how staff and workers are trained in new skills. Hence, even business and market strategies will have to be restructured. He says, “The industry will have to work in shorter planning cycles, scrap annual budgets and targets, and instead plan for different scenarios on a quarter-wise basis. Manufacturers must not produce anything that is no longer needed in the immediate future, and earlier purchase orders of customers will have to be revalidated before starting work. This will require continuous communication amongst all stakeholders, including suppliers, customers and service providers so that targets and objectives are aligned to match demand and supply.”
The work styles or operations across companies call for adaptive changes that can stop the spread of the virus, while simultaneously keeping businesses running, even if not to full capacity. Goel explains that on the shop floor and in offices, companies should reduce the movement of staff to the factory by allowing longer shifts, more off days, as well as ‘work from home’ (WFH) as far as possible. Social distancing, greater hygiene and disinfecting are here to stay. Manufacturers must look at realigning their shop floor (machinery in plants) to create more space for social distancing. Besides, there will be a growing need for a strong focus on workforce management, allocating skills to the right roles, multi-tasking and shift management.
Suppiah adds that as many companies have employees working from home, they must identify the key projects that need delivery and prepare material stocks in advance, in order to prevent a ‘line down’ situation when the production starts. They need to readjust the components deliveries that are in the pipeline.
Since the general economic situation will be slow over the next few months, businesses must focus on products that will be more in demand in the coming months, such as those in the medical, energy, security and industrial sectors.
Unlike the IT and software industry, the electronics industry is not very conducive for WFH. So the working model should be adapted in such a scenario. Rajeev Ramachandra, CTO and founder, Mistral Solutions, says, “The electronics design process requires access to tools and lab infrastructure. Manufacturing requires staff to be at the factory. A lot of process odifications are required for factory operations to enable social distancing. The canteen, equipment positioning, shifts, inspections, assembly line testing…everything needs to be modified for social distancing and efficient operations. Shift operations also need to be structured. Most of the factory employees take factory buses or public transport. All these aspects need to be studied for the safety of the labour force. This will be a huge administrative burden that will push margins down further. The manufacturing industry does not have the luxury of good margins, and this will stress the industry further.”
The ongoing pandemic has transformed the way businesses operate. It has led organisations to rethink the need for physical workspaces as they are leapfrogging to the new normal, i.e., a digital-first model. Manish Sharma, president and CEO, Panasonic India and South Asia emphasises, “Organisations will need to reconfigure themselves to a digitally compatible model where technology takes precedence. Automation, digitisation, robotics, virtual meetings, digital conferences, etc, will continue to be the new norm for organisations, thus giving a strong push to the Digital India narrative.” Following the guidelines set by the MHA and the respective state authorities is very important. Sharma adds, “The company is prepared for staggered operations at our manufacturing facilities with workers coming in batches to ensure social distancing, apart from which frequent sanitising and the usage of masks are among other initiatives to protect our workforce. Even raw materials and finished goods will need to go through a full sanitisation process to maintain safety standards. Besides, key technologies such as automation and digitisation will be important for driving production efficiencies.”
Manufacturing industries need to prepare to resume operations after the nationwide lockdown. Industries need to have a concrete plan for bringing production levels back to the pre-lockdown levels. Industry and government should have clarity on the date the lockdown will be lifted. Batra points out that the government should ask industry bodies and manufacturers to submit their key concerns and requirements to begin manufacturing activities, as every industry has different requirements and problems. During this difficult time, industries must work on their strategy to maintain the optimal level of raw materials, ensure the availability of labour at the production base, plan for the movement of finished goods and, most importantly, focus on cash flow management. Industries may also come up with new norms and protocols within the organisation, to ensure better supply management and risk mitigation protocols in view of this pandemic.
Steps the government should take
Since the lockdown, Indian businesses have been in a dormant state with no activities going on. This has already impacted the economy. The Central and state governments need to roll out more supportive policies to restore the confidence of businesses and ease some of their complications. Ramachandra says, “Government support is required to ensure no manufacturing industry becomes sick. As manufacturing costs are going to shoot up and efficiency impacted, the government needs to relax corporate tax and GST, and provide a simplified process for raw material imports, for which the related taxes need to be eased.”
Tax relief and direct economic packages will be of great help to industries after the lockdown. The government should offer a generous economic package to tackle the situation arising out of this pandemic. It is also to be noted that delays in making such decisions will be dangerous to the economy. Until a cure or vaccine is found, the economy will not get back to normal. The government should also offer support in facilitating trade by deferring demurrage
charges and ensuring easy approvals once operations are resumed.
According to Batra, the government of India should also announce an economic package such as the US and other countries are providing, with financial relief to industries. Recently, the US announced a US$ 2.2 trillion stimulus on a US$ 20 trillion GDP base. He says, “We need to spend more than US$ 200 billion (about ₹ 15 lakh crore). It is essential that we start announcing relief packages that will protect both lives and livelihood.”
Batra points out, “The government should provide immediate relief to the migrant labour. For the post-lockdown period, we need to work on debt restructuring packages to ensure that all businesses can face this period and get back to normalcy again. We need to stimulate the spending capacity of industries and their employees.” He adds that the government should reduce the GST significantly to stimulate spending and this will help in cash management. Cesses and surcharges need to be eliminated for individual and corporate taxes. A deferment of taxes until May 31 can be provided. An interest-free EMI plan can be created for MSMEs and others in the unorganised sector of the economy. Deferment of tax payment will give extra relief to the industries, and help them to pay the salaries and cover other monthly expenditure.