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  • Writer's pictureSahastha

Manufacturing industry and Covid crisis

Updated: Oct 4, 2023

Manufacturing industry constitutes a significant part of the Indian economy. The Covid crisis negatively impacted the manufacturing sector which led to slow down and instability in overall growth. There is reduced customer demand and disruption in supply chains and job loss and the factories are very understaffed which has a huge impact on the manufacturing industry.

In the manufacturing industry, different sectors will have different impacts. In automobile industry, all vehicles, including commercial vehicles, are experiencing negative growth in the past few years. Also the Covid further worsened this sector, the demand and supply both fallen down. Most industries were shaken to their core, financial, real estate, and professional services were estimated to incur huge losses. The construction industry was majorly impacted due to unavailability of labour and disruption in supply of materials, this labour shortages is  due to it being majorly dependent on migrant labourers. Also in the pharma sector, India is a leading active pharmaceutical ingredients (API) manufacturer. The pandemic has halted the export of 26 ingredients commonly used in pharmaceuticals because it has to focus on the production of masks, ventilators, and related components, sanitizer, and other.

Manufacturing Industry Growth 

Growth rate in the manufacturing industry has dropped to -40% in Q1 2020-21. For consecutive eight quarters manufacturing growth rate has declined, indicating a lack of demand and a deeper structural crisis in the sector worsened by the pandemic-induced lock downs.

As per a survey conducted during the pandemic, more than 50% of manufacturers are continuing changes in operations while 35% are already suffering from difficulties in the supply chain. This supply chain disruptions and additional cost being incurred which has a significant financial impact on their businesses. The customer demand had reduced and work schedules had to be reevaluated due to remote working. Certainly, all the sectors impacted negatively in these uncertain times. Supporting activities like the Government has announced a package to help the SMEs, but the manufacturing industry is still a long way in recovering.

For Example

A handful of companies such as Apple said that the global corona virus pandemic hurt iPhone sales and made it harder for the company to manufacture its products.  Apple’s supply chain was down in Q1 2020, particularly due to factory closures in China. But it has since bounced back to typical levels. Overall sales increased slightly, but iPhone sales dropped 7%.

Impact on  Imports and Exports

World trade fell drastically in 2020 due to the Covid crisis. The decline in exports has been mainly due to the global slowdown, large-scale disruptions in supply chains and demand resulting in cancellation of orders. Exports during the 2021 Q1 jumped to ₹ 7000 billion as against  ₹ 3800 billion in 2020 Q1. Imports during 2021 Q1 were at ₹ 94000 billion, an increase from ₹ 4500 billion in 2020 Q1. Total Exports Growth data from Jan 1958 to May 2021, with an averaged rate of 13.2 %. The data reached an all-time high of 188.9 % in Apr 2021 and a record low of -56.3 % in Apr 2020.

As we look at the current  inflation scenario, a large part of the rise in commodity prices will have a massive effect on industry. If we take an example of steel prices rising disproportionate to the end-product prices. It will lead to the decline of India’s engineering exports. Also, Loss of production in some other countries like China, Since India is dependent on these countries for import of finished goods, raw material required for production and spare parts for assembling finished goods etc., this production loss is affecting us.

NAM Survey

In the NAM’s Q1 2021 Manufacturers Outlook Survey, they found that 87% of manufacturers were very confident about their business outlook. The number bounced back from 33.9% in the Q2 2020, which was the worst since the Great Recession. But, the manufacturing industry still faces supply chain challenges, workforce challenges etc.

Covid have impacted the manufacturing industry from top to bottom. Even with good business strategies, companies are facing hurdles due to some factors like the outbreak, quarantining, restricting travel options, limitations, disrupting supply chains, etc.  A major example for supply chain disruption is semiconductors, the shortage of semiconductors has caused production cutbacks in the manufacturing industry, manufacturers not able to meet the demand of customers. Due to a lot of factors, delivery of items directly through the manufacturers is getting delayed. It will affect the business of  All online delivery portals such as Flipkart, Amazon, big basket etc.

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