Focus should now be on manufacturing

The post-lockdown period must focus on commencement of big-ticket infra projects

Now that the lockdown period seems to be withdrawn at least in some parts of the country (green and yellow zones), some kind of positive sentiments are coming to the surface.

A special mention must be made of the transport and logistics sector that take the products to the consumers at the far end of the country. In later part of March and April 2020, the transport constraints did not allow the evacuation of materials from the production locations, nor was allowed the movement of finished materials from plant/warehouses to the end users’ premises.

The tick-up of the sentiment in the post-lockdown scenario is weighed against the various projections that are moving around on the prospect of the killer virus reaching a peak in India by June, the widespread reports of massive and unprecedented numbers of loss of human lives, mostly in the advanced and developed countries and rising mortality rates and fresh victims of the Covid-19 pandemic in a few states in the country.

The sustenance of this sentiment thus would determine the path Indian economy would take us to. No doubt the actualisation of this sentiment faces an uphill task which is more challenging and fierce than any previous ones like we had in the global financial crisis of 2008-09. One must appreciate that a large part of the current crisis originates in poor demand. As demand is weak, supply needs to match it at a much lower level, thereby cutting down production, resulting in low capacity utilisation, high inventories and higher fixed cost per unit of production.

It is heartening to note that the government as part of its stimulus measures has announced a number of financial packages aimed at easing the availability of liquidity, loan repayment and NPAs restructuring for MSMEs which contribute significantly to GDP, have a high employment potential and a predominant share in our exports.
With regard to the steel industry, the role of SMEs is displayed by nearly 50% share on production and major share in products like TMT, wire rods, structurals, coated products and tubes and pipes.

Similarly, the presence of SMEs in steel user segments such as construction companies, housing companies, equipment, including electrical equipment and tools manufacturers, food processing units, can manufacturers, Rail and road contractors, TLT manufacturers, bus builders, bicycle manufacturers, auto component makers, steel fabricators and a host of other users of steel is significant. Their rejuvenation in the post Covid-19 pandemic scene, would contribute to production and consumption of steel and enhance the availability of a whole gamut of capital goods, consumer durable goods and packaging goods to cater to the infra, engineering and household demand. The government has also introduced some long-pending reforms in agriculture and mining sector which would surely facilitate marketing of agricultural goods and thereby fetch a remunerative price for food items. On the other hand, the mining reforms would go a long way towards removing uncertainty in availability and expedite auctioning of mines to improve supplies. Impetus has been given on exploration of fresh mines in coal, bauxite, limestone and others.

The post-lockdown period must focus on commencement of big-ticket infra projects. Among these, the priority needs to be accorded to the projects already commenced and in which the part of investment has been made. Many road projects, Metro, DFC fall in this category. These projects have a higher prospect of being completed faster than fresh projects and have a quicker deliverability. As construction of dwelling units, buildings, irrigation projects in the rural and semi urban areas had commenced earlier on April 20 onwards, some demand of constructional steel (re-bar, wire rods, rounds and light gauge structural sections as well as GP/GC and steel pipes) have already emerged. This demand would be further enhanced with the latest announcement of `70,000-crore bonanza for approximately 2.3 crore of houses under CLSS (credit linked subsidy scheme). Simple designs of steel intensive houses by INSDAG are available which indicates 1.5-2.5 tonne steel per house. This itself has a potential demand for approx. 34.5-57.5MT of steel which sounds like a dream, but that is the outcome of steel intensive structures in the domestic market.

Expectedly IIP data for March 2020 indicates the performance for the first fortnight only as the next fortnight in the month got washed away due to lockdown. A 21% fall in manufacturing (may be marginally up when final figures come) during March 2020 has brought down the yearly growth rate to (-)1.3% against 3.9% growth in FY19. The call for self-sufficiency by the Prime Minister in building up our own base of manufacturing is indeed timely.

The pandemic has created a vacuum in global manufacturing space with the leading countries, Germany, France, Italy, UK, US losing their momentum in basic manufacturing operations, have already started withdrawing their bases from China, Vietnam. Indian manufacturing sector, especially the MSMEs, must utilise this opportunity by taking part in the global supply chain and thereby attract foreign investment in setting up facilities in India or expanding the existing facilities.

The GOI is to further simplify the contractual clauses and documentation for doing business without compromising our interest. The growth of manufacturing is most crucial for the country in the post lockdown period to create job opportunities, income generation, demand for commodities like steel (also special grades) and earning foreign exchange via exports.

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