Reboot India | What is needed to kickstart manufacturing

As India and the world tackle the coronavirus pandemic, the outbreak is leaving visible scars on the manufacturing industry. Manufacturing has come to a grinding halt due to the lockdown, and even after relaxations, the supply chain is still not in place to support full-fledged manufacturing.

The export sector has started feeling the pinch with shipments getting held back until further instructions and a significant number of incidents eventually leading to the cancellation of orders. At the same time, consumption is also severely dampened, closing opportunities for cash flows and revenues.

While battles against the coronavirus pandemic continue unabated, there is a need for a bold and comprehensive package to ensure that the industry, especially the FMCG manufacturing sector, comes back on track as quickly as possible.

To revive the fortunes of the FMCG manufacturing sector and also to position India as a serious value proposition for attracting new investments, the following imperatives need to be attended on top priority by the nation as a whole.

 Carry out essential reforms:  India has an opportunity to increase production capacity, focus on an export-driven model and give a thrust to the ‘Make in India’ campaign and ‘Ease of doing Business’ (EoDB), exercise that has indeed brought in lots of important reforms in the way permissions and approvals are granted to industries. It is time that the most result-oriented and useful EoDB practices from across the country be mandated in all the states uniformly so as to increase the overall attractiveness of the country as a whole. The Center should work with states to develop large industrial parks and industrial corridors containing themselves. The states can contribute land while the Centre can provide infrastructure funding. We need world-class ITIs in any state.

While the FMCG manufacturing sector has got scathed with COVID-19 time is also ripe when the government leverages the sharp drop in prices, which will help India reduce its trade deficit and also the current reduced inflation to give more funding to FMCGs.

Non-scheduled rate cuts, a moratorium of a few months on EMIs, interest and loan repayments & incentives to the exporters to compensate for GSP withdrawal are expected to support them. Also, planned shifting of production to India by many global manufacturing MNCs becomes a benefit for capturing more business from the US & European customers. This value of skilled Indian manpower needs to be supported by the long-awaited labour & land reforms and requirement of massive infrastructure improvements, lower administrative bottlenecks, investments in steady power supplies, efficient port and road operations and greater ease in custom clearance & elimination of connectivity issues.

 Focus on emerging sectors: FMCG Companies should invest in online as part of their push for omnichannel distribution. This lean period is increasingly being used by organisations to focus on emerging sectors like medical, railways and environment & renewable management. Segments like textile, electronics and auto components (especially EVs) have witnessed the maximum impact due to supply chain disruptions and shipments via sea being suspended.

This will lead to strategic investments for localisation/ decentralisation. The trend may go towards developing supply chains closer to avoid such disruptions in the future. The government has already made a broad assessment of the impact on the sector, from interactions with ministerial colleagues and companies. Measures including relaxation of various tax compliances could also be announced in a staggered manner.

Improve the competitiveness of exports:   India’s manufacturing sector, which contributes 16% to India’s GDP, is itself marred with a myriad of challenges. Tax and tariff policies, labour regulations, logistics and discrimination in the export market are a few of them.

Export markets offer a good opportunity for domestic manufacturing to tide over the present crisis in a short period of time. There needs to be a relief for exporters to offset the burden of state taxes. A simplified permit and single port clearances, alongside addressing bottlenecks concerning the transport industry and increase in logistics sufficiency would play out in India’s favour.

This also requires aggressive scouting of markets and creating a deal better than what competing nations offer. To enhance the quality of products that are going to be exported, soft loans for procuring best quality machinery are needed, along with training of staff to maintain international standards in production. An attractive package of incentives on exports is another must.

 Financial assistance to FMCGs small enterprises:  They are the backbone of the economy, their collapse will have a direct impact on the overall FMCG manufacturing sector.  To avert a disaster, businesses should cut down on unnecessary costs and do a scenario planning for cash flow, P&L, balance sheet and identify triggers that might significantly affect liquidity. The most obvious prescriptions are to support them with relief in the areas of taxation, easy and very soft credit for others, along with deferment of statutory dues.

The present circumstances are such that some small enterprises are definitely going to go belly up, leading to job losses. Providing unemployment allowance and re-employment assistance for those laid off is to be seen as the duty of the government, and the Centre and states need to work together for this.  The schemes and benefits extended to this sector should be adequate to bring them out of the woods.

The government should identify the simplification of policies and fast-tracking of approvals to make sure that this opportunity is not lost on us.

The government plays a key role:  The government has to ensure that when the economy kick-starts again, the general public should be in good spirits and there are enough liquidity and positivity for the consumer to reach the store for purchases, especially with regards to non-essential commodities. Once the manufacturing industry in India finds itself stabilising again, the first step is to be ready for a restart; most factories have not stopped operations for such a long period and this will be a key challenge. At the same time, production costs and sale prices have to be kept low to ensure price stability or even reduction to kindle demand.

This includes a national consensus, and the best minds and skills willing to work. An Empowered Strategy Community comprising members of the central government, few state governments, business leaders, bankers, policy experts can be tasked with working on this urgent imperative.