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Impact of COVID-19 on the Manufacturing Sector in India

COVID-19 put an immediate halt to many business activities across the globe. The lockdown in India impacted manufacturing activities across the global supply chain and value chain. India took special measures to control the spread by imposing one of the longest lockdowns in the world, to cushion the scarce availability of healthcare resources while also shielding the economy from a massive collapse.

First Wave

India’s manufacturing sector has gone through various phases of development in recent times. The industry contributes to approximately 16-17% of the GDP and employs almost 20% of the country’s workforce. During the first pandemic wave, lockdown-imposed restrictions on the movement of goods and people severely impacted workforce capacity and disrupted supply chains, bringing nearly all manufacturing activity to a stand-still.

Second Wave

A second wave was witnessed towards the end of the 2020 financial year. The country’s optimistic recovery was thrust into further uncertainty as cases increased far more rapidly than the first wave. Healthcare infrastructure in the country faced a total collapse as citizens ran helter-skelter in search of beds, oxygen cylinders, and resources to survive the second wave.

Key Issues that impacted the manufacturing sector (Please use graphic or the text below)

  1. Supply Chain Disruption/Raw material shortage
  2. Capacity Underutilization
  3. Labor Shortage
  4. Weaker Demand
  5. Special Regulatory Restrictions
  6. Liquidity Crunch 

Government Initiatives amidst COVID-19

On 12 May 2020, the Government of India announced a special economic stimulus package of INR 20 trillion (approx. USD 275 billion; equivalent to around 10% of India’s GDP) with the aim of empowering the industries and workforce that had been adversely affected by the COVID-19 lockdown. The package included increased borrowing limits of State government up to 5% from the previous rate of 3% of Gross State Domestic Product (GSDP), collateral-free loans for businesses, and subordinate debt for MSMEs.

The Indian Government has continued its slogan of ‘Vocal for local’ and has placed increased importance on indigenous manufacturing with the aim of ‘Aatmanirbhar Bharat’ or ‘Self-reliant India.’ This is apparent as the overall domestic manufacturing sector and several companies in India have started to reconfigure their sourcing and ecosystems for greater reliability and resilience. The government has announced a new Production Linked Incentive (PLI) scheme for 13 key sectors. The incentive provided will range from 3% to 10% on incremental sales (over the base year) of goods manufactured in India.

Way Forward

India has a clear advantage in terms of its workforce, policy, and infrastructure. However, to build confidence amongst firms worldwide, the country will have to overcome certain hurdles that would need to be addressed in the short- and long-term, especially restructuring business efforts post the second wave. Vaccination and liquidity are at the forefront of the Indian fight against the second wave, which is imperative to absorb the economic impact of the second wave and avoid the third wave. India’s role in the post-COVID-19 era, particularly in the industrial sector, is a subject of great interest, hope, and speculation to the rest of the world.

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