Economy opens but migrant labour yet to return; manufacturing in these cities bears maximum brunt

The unavailability of skilled labour has led to significant pressure on the output, leading to underutilised capacity in the manufacturing sector.

The large-scale reverse migration of labourers in the month of April still haunts the manufacturing sector as the recent surge in coronavirus cases and subsequent lockdowns are preventing their return to the workplace. A prolonged disruption will even dampen migrant labourers’ sentiments, said a report by India Ratings. The manufacturing sector, especially the MSME of Maharashtra and Delhi, will be at the forefront of the disruption, it added. The unavailability of skilled labour has led to significant pressure on the output, leading to underutilised capacity. While some MSMEs are witnessing marginal recovery in demand from exports, the labour shortage has restricted them from operating at their full capacity.

The report also highlighted that the manufacturing firms in Delhi and Haryana are more susceptible to the reverse labour migration than the firms based out of Maharashtra and Gujarat. The states of Delhi and Haryana are classified as highly vulnerable with their respective MDR (Migrant Dependency Ratio) at 93.52 and 51.74 whereas Maharashtra and Gujarat are classified as moderately vulnerable with their MDRs at 29.19 and 17.12.

Also Read: Service sector falls sharply in July: No real sign of economic recovery; job cuts at record high

While the manufacturing sector is already reeling through high pressure, the rating agency has predicted an increase in cost, led by either loss of economies of scale or higher wages of workers, as demand exceeds supply. Consequently, the margins for such companies could come under pressure in the ongoing quarter.

Though the labour shortage is likely to accelerate the automation process, the near-term challenges in the form of low capacity utilisations, the higher production cost is expected to be inevitable and hence margin contraction are likely to impact the companies facing labour shortage due to reverse migration. Meanwhile, various companies have rolled out lucrative offers to bring back migrant labours, which includes flight tickets, health covers, etc. However, the tragic return of the labourers still weighs heavy on their sentiment and the idea of return raises many questions amid various uncertainties.