Alarmed by the increasing cases of COVID-19 infection and deaths, the Tamil Nadu government has gone for a more stringent lockdown for a week from May 25, 2021, demanding temporary plant closures. As of May 24, the seven-day rolling averages of reported COVID-19 cases and deaths decreased in 10 out of 20 states. But in Odisha and Tamil Nadu, both cases and deaths increased.
However, the Tamil Nadu government permitted continuous process industries such as those manufacturing essential commodities and medical equipment to function during the lockdown between May 24 and 31, 2021. But the restrictions on using two-wheelers by the workers of the manufacturing units have hampered their prospects.
Who Is The Worst Affected?
Tamil Nadu contributes about 20% of the turnover of the auto component industry in India. It is home to several OEMs, including Ashok Leyland, BMW, Caterpillar, Daimler India CV, Ford, Hyundai, Nissan, Renault, Royal Enfield, Stellantis, TVS Motor and Yamaha. In addition, hundreds of suppliers are also present in the state.
Tamil Nadu ranks third in the total number of MSMEs in India. The state has about 50 lakh MSMEs in the non-registered unorganised sector. There are 6.79 lakh micro, 90,627 small and around 2,450 tiny manufacturing units registered in the State. Approximately, 35-40% of the manufacturing units supply to the automotive industry. About 70% of MSMEs in Chennai, Kanchipuram, Thiruvallur and Chengalpattu districts are part of the automotive supply chain.
The worst affected by the current situation are those from the Micro, Small & Medium Enterprises (MSMEs). Most of them are owner-operated units, and they depend mostly on two-wheelers for commuting. These units face several other hurdles like funds crunch, lack of bank credit and orders, high raw material prices, market linkages and manpower.
Shuba Kumar, Chairperson, Southern Region, ACMA, told Mobility Outlook that while the lockdown is essential for human health, the MSMEs face many challenges due to the inability to operate two-wheelers. “On the contrary, riding two-wheelers is an advantage as it avoids crowding. The government probably considers it risky and, therefore, has not allowed it,” she said.
Transportation
The government has asked to transport the workers either through staff bus or vans. But how can MSMEs follow this as most of them are very small with a handful of workers, asks D Ravi, Chairman, MSME Committee, South India Chamber Of Commerce and Industries (SICCI).
While accepting that the lockdown was warranted, he said, “the restrictions and provisions for e-pass for the movement of employees by the government during the last lockdown were supportive of the industries since about 50-60% of employees could make it to their work, despite non-availability of public transport. But the more stringent lockdown from May 24, which restricted public transport and two-wheelers, made it difficult for the manufacturing companies to operate.”
The authorities, who permitted large companies to operate, failed to understand that they cannot function without the entire supply chain, including the MSMEs.
OEMs are integrators, while all the parts are made by MSMEs, which are ignored, said Ravi and added that MSMEs are critical to the growth of the economy.
Sudhakar Sundaravel, Chairman, MSME Sub-Committee, CII-Southern region said about 40-50% of total sourcing by large companies is from MSMEs. The challenges faced by MSMEs during the pandemic-induced lockdown include funds, orders, market linkages and manpower.
Most of the MSMEs cannot afford to organise cabs or vans to transport workers. With a skeleton staff, production will be reduced, which will increase the cost of production. Moreover, there will be supply chain delay, and these issues will have a cascading effect on large industries.
Shuba Kumar said, “If the severe lockdown is effective, I am hoping that next week the government will go back to the earlier situation, based on the health condition on the ground. It will eventually bring the entire supply chain back to action. If the stringent lockdown is restricted to a week, we will survive. Not only ACMA, but all the small industries associations have represented to the government the issue of the employees using two-wheelers on a single person basis.”
Since the ACMA member companies in this region supply to customers across India and beyond boundaries, it is not possible to disrupt the supply chain, she added.
According to sources, the large auto component players and many Tier 1 companies in the State are working, though not to full capacity. These are primarily to fulfil export obligations, demand from other regions (especially from OEMs of the northern region), and build stocks.
Is There A Right Solution?
According to Sudhakar, allowing personal commuting by workers will ease the situation. Ravi said it is essential to contain the spread; the containment areas should be effective, but containing industries will affect the economy. Large companies have announced paid holidays, but MSMEs cannot offer paid leave like the OEMs because their very survival is at stake.
“The government showed the way by giving salary without work. The workers of private companies expect similar treatment. Among the private companies, large companies can do that, but not MSMEs,” Ravi said. On a humanitarian basis, in 2020, many MSMEs supported their workers with pay varying between 50% and 100%. But this year, it is unlikely because of their poor financial condition.
Sudhakar said timely support from the government is inevitable, but nothing is moving this year compared to last year, when the Emergency Credit Line Guarantee Scheme (ECLGS) for INR 300,000 crore was very popular. Of this, INR 280,000 crore was availed of by the cream of MSMEs alone. It was because the bankers were sceptical about extending the scheme to a large portion of the small and tiny units. It will be good if the government prioritises the micro-industry, he said.
Despite the poor performance by the manufacturing sector as a whole in FY21, an increase in commodity prices, especially the doubling of the steel price, has affected the MSMEs much. Moreover, steel has to be procured by paying the money in advance.
Sudhakar insists that the moratorium should be extended at a lower interest rate. Under the Credit Guarantee Scheme for Subordinate Debt (CGSSD), INR 20,000 crore is allocated to help two lakh MSMEs that are stressed and in need of equity support. But it has failed, as a borrower has to bring in a sizable investment to avail of the funding support.
Ravi believes that the moratorium is not an appropriate solution if the interest rates are not waived off or reduced, since the MSMEs have to adhere to several statutory requirements. Sudhakar said, NPA norms have to be extended up to 180 days instead of 90 days now, as once a company is declared as NPA by the banks, it cannot get funds in the future easily.
The MSME sector is closely watching the developments as commencing operations will save them and the entire value chain and economy.
NB: Factory photos are representational.