(Re)starting trouble

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Dharmesh Kachiwala, 48, who runs a textile processing unit in Surat, is distraught as the national lockdown nears the one-month mark. Although the new guidelines from the Centre, ann­ounced on April 15, allow industrial units outside the COVID-19 ‘hotspots’ in Gujarat (such as in textile hub Surat) to resume operations from April 20, entrepreneurs like him aren’t taking any chances. “Surat’s textile trading market is closed, so where will we sell our products, even if we make them?” he asks. His firm, J.P. Kachiwala Textiles, supplies processed cloth to garment makers, who in turn export finished garments to larger firms such as British retailer Marks & Spencer. But even those businesses are now shut. “Once you start your plant, you have to keep operations going 24×7, else it becomes an expensive proposition,” he says. Having to pay salaries to 250 employees without any income is another burden.

Kachiwala and around 450 like him in the textile processing business in Surat are staring at a bleak future. So are the nearly 200,000 small and large powerloom units in Surat that supply cloth to the processing units. This is the case in almost all major industrial hubs in the country. The lockdown that began on March 25 may have slowed the spread of COVID-19, but has crippled India’s economy. Many analysts have predicted flat growth or even economic contraction in the first quarter of the current fiscal.

With this in mind, the Union min­istry for home affairs (MHA) issued new guidelines on April 15 to allow at least some industries to restart operations. Industry body CII (Confederation of Indian Industry) had wanted the government to allow the textiles, garments and automobile sectors to begin work from April 20 to meet their export obligations. While a partial lifting of restrictions seemed an ideal way to get the economy going while halting the spread of the virus, the plethora of guidelines from the Centre, states and local administrations have not eased matters much. Add to these the disruptions in the supply chain, access to labour and the stalled demand, and the result is that most firms, even those outside COVID-19 ‘hotspots’, which were allowed to resume operations from April 20, have remained closed.

While industries in the ‘essential goods’ category already had permiss­ion to operate, the new guidelines allow several sectors to reopen. These include industries in rural areas, and manufacturing and industrial units with access control in special economic zones (SEZs), export-oriented units and industrial estates and townships. But there are a number of preconditions. For one, as far as possible, workers must stay on factory premises. If this proves impossible, factory owners must make their own transport arrangements for workers, and the veh­icles used must operate at less than 40 per cent capacity to ensure physical distancing. Factory premises must be regularly sanitised. All workers entering or exiting must be thermal screened, must have medical insurance, and employers must discourage gatherings of 10 or more people. These restrictions mean that industries that do open face higher costs and difficult working conditions. But the biggest “disincentive”, as Anand Mahindra puts it, are directives that impose severe penalties on managem­ent, which may include punishment with imprisonment, if an employee is found to be COVID-19 positive. An MHA spokesperson clarified on April 22 that penalties would apply only if offences occurred with the “consent, cognisance or negligence” of the empl­oyer, but many feel this leaves room for unnecessary prosecutions.

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Another issue is that firms in ‘hotspot’ districts must remain closed regardless. All districts in India have been put in one of three categories, hotspot or ‘red’ districts, non-hotspot or ‘orange’ districts and non-infected or ‘green’ districts. Across the country, 170 districts have been classified as hotspots. Of these, 42 are in Maharashtra, Tamil Nadu and Delhi, and these three states together account for about 30 per cent of India’s GDP. This means that despite the partial relaxation of the lockdown, industrial activity is likely to remain muted.

Moreover, the district collector, the fulcrum of local administration and directly in charge of measures to contain the pandemic, is likely to prioritise safety over easing restrictions, given that lives are at stake.

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PROBLEMS EVERYWHERE

Since the MHA’s notification on April 15 permitted industries out­side ‘red’ districts to begin operat­ions from April 20, there were hopes that some firms would quickly restart work. But the response from industry has been tepid. R.C. Bhargava, chairman of Maruti Suzuki, says his company is not in a position to start work at all. “The car industry depends not just on the factories that assemble the cars, but on the entire supply chain. Any disruption in that and we will not be able to manufacture the final product,” he says. For example, Maruti Suzuki makes engines at its plant in Gurgaon, a hotspot, which is closed. Without those engines, its Manesar plant (which assembles cars), cannot work. These plants, in turn, are connected to a network of over 300 suppliers. Production also depends on sales, and dealerships across the country are closed.

This integrated nature of modern manufacturing makes it impossible for plants to operate in silos. This is why steel companies, including JSW Steel, Tata Steel and SAIL, have had to drastically cut production, although steel-making is a ‘continuous process’ industry and was allowed to maintain operations. Strict labour norms and a lack of demand also played spoilsport. JSW Steel, which has six plants in India, was operating them at the bare minimum capacity. “Everything was closed. Getting inputs, getting workers to factories and despatching the final product, [all of it] was impossible,” says Seshagiri Rao, joint managing director and group CFO, JSW Steel. He says that if business is to normalise, the entire supply chain has to be opened up and demand also has to recover. “If allowed, production levels can be normalised very quickly, but restrictions have to be eased across the country,” he says. In a similar vein, UltraTech Cement, a leading cement manufacturer from the Aditya Birla Group, with 19 plants across the country, including in Rajasthan, Andhra Pradesh, Maharashtra, Himachal Pradesh, Madhya Pradesh and Chhattisgarh, says that it has only “partially resumed” operations.

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Rajiv Bajaj, MD of Bajaj Auto, terms the lockdown the most severe amongst all economies and wants the government to review its response to the pandemic. “What has been started by the virus has been compounded by not-so-smart action by the government,” he told India Today TV, adding that the government’s ‘draconian’ conditions for re-starting were big roadblocks.

Small businesses are also hamstrung. Anil Bhardwaj, secretary general of the Federation of Indian Micro and Small & Medium Enterprises (FISME), says that getting approvals from local authorities is a problem. There is no automatic process for approvals, and so firms have to approach administrative offices individually and file undertakings saying they will adhere to the MHA’s norms. If they violate these provisions, they could be held liable under Section 188 of the Indian Penal Code.

Medium and small businesses are also struggling to meet MHA requirements, especially when it comes to accommodation and transport for workers. Most small workshops simply do not have the space. Moreover, transporting workers remains a risk, given that many cases of COVID-19 are asymptomatic and the virus is extremely contagious. In Uttar Pradesh, the government later clarified that in areas where more than 10 cases had been identified, factories would remain closed. So far, only firms involved in food processing or essential services have opted to stay open.

For MSMEs, access to raw materials also remains a challenge. “The situation is that MSMEs in rural areas are open while their raw material suppliers and component suppliers are closed,” says Bhardwaj. “So restarting is tough.” He estimates that of FISME’s two million member-firms, not even five per cent re-opened on April 20. To get a clear picture of how Indian industries are responding to the partial lifting of the lockdown, india today conducted a survey across many states. In a nutshell, the news is not good.

ON-GROUND ISSUES

In Maharashtra, industrial activity has been permitted in ‘orange’ and ‘green’ zones in 20 districts, including in SEZs and those areas under the Maharashtra Industrial Development Corporation (MIDC). Almost all major industrial units have remained closed. For instance, auto parts manufacturer Lumax, with plants at industrial townships near Pune, at Chakan and Chinchwad, hasn’t restarted work. “Supply chains are extremely integrated,” says Deepak Jain, its MD. “Restarting them is not easy. We have to align our output with our customers’ requirements. A lot of synchronisation is required.” Jain, who is also president of the Automotive Component Manufacturer’s Association, explains that while they may have permission to restart work, for component firms to be sure that their output will have buyers, they have to wait until their customers, automotive firms, have developed their business plans. Even many of the firms in the ‘essential’ category (like food, pharmaceuticals and steel) in Mumbai’s TTC-MIDC industrial belt, comprising over 7,000 firms and employing over 700,000 people, have not reopened, citing stringent government norms.

In Gujarat, many factories in the dozen-plus industrial clusters in the state remain closed, with factory owners fearing FIRs if any of their workers test positive for COVID-19. However, the government has moved swiftly to assure industry associations that legal action would be taken only in case of severe or deliberate violations that lead to a spread of the disease. About 1,500 of the total 2,000 factory units spread across 20 SEZs like Kandla, Adani Port and SEZs in Mundra and Dahej have been given permission to resume work, as well as 285 export-oriented units. Exports from SEZs in Gujarat were worth Rs 1.85 lakh crore in 2018-2019.

M.K. Das, principal secretary, industries and mines, says that of the 125,000 big industries in the state, about 27,000 have partially restarted. Companies have moved from 8-hour shifts to 12-hour shifts to maintain social distancing. He claims that of the 1.2 million workers in rural areas, about 300,000 have rejoined work. One of the major worries for the smaller factory owners is transportation. Says Sudhir Mehta, chairman of the Rs 27,000 crore Torrent Group, “For the industry, the one month lockdown has felt like a year. It will take three to four months for business to recover.”

In Uttar Pradesh, the lockdown is set to continue in as many as 19 districts, including Lucknow, Agra, Noida, Kanpur, Ghaziabad, Bulandshahar and Basti. A major problem appears to be getting permission to restart. “Most states were supposed to set up an online facility [through which] businesses could seek approvals, but Uttar Pradesh still does not have one,” says Vinod Sharma, MD of Deki Electronics, a manufacturer of film capacitors. On April 20, when business owners in Noida logged on to the government portal, they found it dysfunctional. Trips to the district magistrate’s office didn’t yield any information, many were told to wait for clarifications from Lucknow. Then, re-opening of businesses was cancelled, since Noida was a ‘red’ zone.

In Punjab, on April 19, Chief Minister Captain Amarinder Singh ruled out any relaxation in the curfew, except for the harvest and procurement of wheat, till May 3. But the next day, the state government said industries in rural areas and in recognised industrial zones could operate along MHA guidelines, with state additional chief secretary Vini Mahajan telling industrialists that they had to make arrangements for either transportation of employees or for them to be accommodated on-site. The state government has also identified hotspots in six districts, Mohali, Jalandhar, Amritsar, Pathankot, Mansa and Ludhiana, which require intensive monitoring, alongside other hotspots in the state. These regions contribute roughly 25 per cent to the state GDP.

In Tamil Nadu, reopening has been deferred to May 3. The CII’s Tamil Nadu chapter has been pushing for a partial relaxation so that export-oriented and critical sectors, including food processing and commercial vehicle manufacturers, can restart. The state is one of India’s major manufacturing hubs, comprising automobiles and ancillaries, cement, chemicals, fertilisers, refineries, steel and textiles. Though the state government had permitted ‘continuous process’ industries to operate with skeletal staff on April 7, it withdrew the permission within hours in the wake of the spread of the infection across the state. “Some of these industries are mulling a staggered approach to restarting the businesses. There are many migrant workers stuck in factories and plants across the state, whose services could be utilised to ensure the maintenance of machinery,” says Hari Thiagarajan, chairman of the CII’s Tamil Nadu chapter.

In Telangana as well, reopening has been deferred to May 3. Information technology is the dominant sector, and the state is firm about the lockdown in the Greater Hyderabad area. Most businesses have continued their operations with employees working from home. Most companies are outside the containment zones in the state capital.

In Himachal Pradesh, the state government has allowed the production of essential products and medicines in the industrial belt in Baddi, in Solan district. However, media reports say that of the 323 pharma units there, 49 major ones aren’t operational as they find it difficult to comply with MHA norms. In Uttarakhand, the industry is concentrated in pockets like Pantnagar in Rudrapur, Haridwar, Dehradun and Sitarganj. But with migrant labourers having returned to their villages, firms are finding it difficult to start operations. “It is very difficult for us to make food and lodging arrangements for workers,” says Arun Saraswat, president of state-owned SIDCUL, in Haridwar.

In Haryana, the state government has issued green passes for workers in factories that are allowed to operate, red passes for workers in essential service and blue passes for those involved in construction activities. However, interstate travel is an issue. Businesses in Gurgaon, Faridabad and Sonepat have sizeable numbers of employees coming in from Delhi, Noida and Ghaziabad in UP or adjoining Rajasthan.

Meanwhile, in Karnataka, the government withdrew an order allowing IT firms to operate with 30 per cent of their workforce and said on April 18 that all employees need to continue to work from home, except those in essential services. In Madhya Pradesh, projects under MGNREGA have started, especially in Bundelkhand and tribal areas. Construction work has also begun in some districts, albeit in a small way. And in Rajasthan, mining and construction work has started, while limestone quarrying has begun in Jodhpur, Udaipur and other industrial zones.

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REMOVING THE HURDLES

To get businesses moving, several districts need to move out of the ‘red zone’ classification. That, of course, means the disease has to be controlled, for which there are no short-cuts. Meanwhile, what businesses are looking for is clarity in regulations. The multitude of directives from multiple agencies is not helping. Industry is seeking a single roadmap to opening of businesses. It also wants the government to take a more lenient view on managing the workforce. Insisting on accommodation for workers at factories and companies providing transport for workers may be practical for large firms, but not so for small and medium-sized ones, especially with no business activity to keep cash flows going. Most norms seem to have been framed without much feedback from industries, which has led to blanket restrictions where a more nuanced approach would have helped. Bajaj has a point when he says that firms outside municipal units should have been permitted to start. Also, workers aged 20-60, who are supposedly more immune, could be allowed to work in factories and showrooms. The government will have to quickly move on firming up norms that industry finds easier to comply with. Else, in its efforts to control the pandemic, it will end up throwing out the baby with the bathwater.

with Shwweta Punj, Anilesh S. Mahajan, Amarnath K. Menon and Uday Mahurkar

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About the author: Sohom Das
Founder of Tuccho.

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