The shutdown of production could have major adverse effects on the auto industry

The hardest hit will be temporary workmen. An economic slowdown is inevitable; priority must be given to the health of its workforce, which has the power to revive the economy

Swati Subhedar
| Updated: March 25th, 2020

The COVID-19 virus which was discovered in China in December 2019 is spreading the world over. As countries struggle to cope with the effects of the virus, various measures are being taken to curb its spread. Measures such as social distancing, enabling people to work from home and limiting movement of people though lockdowns are being implemented to contain the spread of the virus. However, these measures bring with them greatly lessened economic activity.

In India, which is already suffering from an economic slowdown (the GDP growth is ~5% in FY19-20 compared to 8.15% FY15-16), shutdowns or lockdowns may have a negative impact on its businesses and on the economy. For the automotive industry in India, which is already suffering from lowest ever sales, and which is gearing up for the transition to BS6 emission norms (which comes with an increase in vehicle prices), the shutdown of production could have major adverse effects.

Although directives are still being issued by state governments, various automotive OEMs (Original Equipment Manufacturers) are taking heed of the global crisis and shutting down operations until March 31. Tata Motors, Mahindra, Bajaj Auto, which were already working on the partial workforce, have announced lesser/no production until March 31 at some of their pan-India facilities. In a notification issued by the District Commissioner, Gurugram, all industries and offices are being advised to allow their workforce to work from home until March 31. Gurugram industrial belt is a major hub for auto OEMs. Such measures, while essential to curb the spread of the virus and ensure the safety of all employees, will deal a big blow to the already ailing Indian automotive industry.

The country saw a mass ‘exodus’ of the workforce from Pune and Mumbai on the eve of March 22 ‘Janta Curfew’ announced by Prime Minister Narendra Modi. The Automotive companies have many challenges ahead – to ensure operators/workmen are present on duty when production resumes, and to manage supplier operations to ensure that assembly lines are running smoothly. This, after an assumption that work could indeed resume on April 1, which, looking at the current situation, seems a grim possibility. The same measures will have to be taken by the automotive supplier industry, which depends on the automotive OEMs to survive. To ensure the wellbeing of temporary workers, some OEMs are declaring full compensation during the shutdown period.

Still, the hardest hit during these trying times will be temporary workmen, daily wage earners and MSME (Micro, Small and Medium) industries in the automotive domain as they are dependent on OEMs for survival. Loss of sales for the auto OEMs will mean lesser revenue to feed the tiered supply chain, which also employs labour.

In Europe which has now been declared as the epicentre of the virus, global automotive OEMs are shutting down operations as well. This will have a major impact on the global automotive supply chain industry. Only a great effort to improve operational efficiency will ensure a healthy future for many companies — in India, as well as the world over.

However, there is a silver lining: fresh cases in China are on a decline, which shows that effective containment measures such as lockdowns do work. At a time when an economic slowdown in India is inevitable, priority must be given to the health of its workforce, which only has the power to revive the economy.

(Ranjit P is the executive director of a mid-size company which caters to the automotive industry)