Case Study | India’s manufacturing sector: Is there a recovery?

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A car manufacturing plant

A year ago, it looked like shifting global dynamics owing to the current pandemic could guide India into the manufacturing sector. Come 2021, India lost its hold of a variant of the novel virus.

The Indian manufacturing sector has reached near a standstill. This sector has the maximum amount of forwarding and backward linkages, so manufacturing could decisively maintain and propel economic recovery.

However, restrictions on the rise of Covid cases have dropped the manufacturing sector’s operations massively. On top of that, there will be a rise in coronavirus cases and the deceleration of manufacturing.

The rise in Covid cases could strain demand further while firms’ financials are already prone to the obstacle of rising global prices.

India’s GDP, during the first quarter (Q1) of 2020-21, shrunk by almost 24%, and the share of the manufacturing sector in total gross value added (GVA) was 17.5% in Q1 of 2019-20 contracted to close to 14% in the current quarter.

India’s manufacturing and other industries are heavily dependent on imports of heavy types of machinery and equipment, but the imports have been going down. These imports are crucial for India’s output expansion because many sectors, which are part of India’s top exports, are also its key imports.

That was one of the reasons why India witnessed a negative import list for defense equipment, seemingly to boost the ‘Make in India’ projects. However, they just have not started it yet.

As per a report by United Nations Industrial Development Organization (UNIDO), after the lockdown was mandated last year, India’s manufacturing had stopped, except for the rice milling companies. But, even that production got cut by half.

Metals, chemicals, motor vehicles, machinery, and equipment, textiles, etc. are industries that have been most affected in manufacturing.

The automobile industry encountered a scarcity of spare parts from China, but the factories there were shut after the pandemic struck. As a result of the pandemic, the automobile industry struggled for Rs 2,300 crores loss per day, and approximate unemployment in the sector was around 3.45 lakhs.

However, recently, Maruti Suzuki shuttered its factories in Haryana to produce oxygen for medical needs. Last year, amid the first wave of the virus, the demand for oxygen in India rose four times.

Coronavirus will remain for some more months, with anticipation of the third wave in India. Meanwhile, non-essential selling retail outlets are temporarily closed as they try to tackle this issue with uncertainty.

For the manufacturing industry, in particular, there is an incremental chance of uncertainty. It will require immense effort and large financials from the government, industry, and key stakeholders to make sure that the manufacturing sector overcomes and returns to operational mode.

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