Recovery in India’s Manufacturing Activities Amidst the COVID-19 Pandemic
India’s manufacturing activities flourished for a month at the beginning of the year 2020 , but with the outbreak of the COVID-19 pandemic, the situation started worsening. From the month of February till July, the manufacturing of goods faced impediments, such as the government-imposed lockdowns, disturbance in the production lines and operations, labour shortage, shortage of raw material, and more. However, in the month of August and September, the manufacturing activities started its recovery due to the easing restrictions and government allowances.
The Indian manufacturing sector remained relatively secured from the disturbances caused by the COVID-19 outbreak until the month of March. The decline in manufacturing activities reflected in the Purchasing Managers’ Index (PMI), which slumped from 54.5 in the month of February to 51.8 in the month of March. The reading was accounted to be the slowest since November 2019. The decline was the result of a slow increase in output and new businesses, together with a steep decrease in exports followed by the outbreak of the COVID-19 pandemic, which brought down the Indian manufacturing activities to a four-month low. The decrease in new export orders was the result of a faltering international demand and rapid increase in the number of COVID-19 cases worldwide, which significantly contributed to the slowdown.
In the month of May and June, when the Indian government classified food and pharmaceuticals as essential services for the common consumers, some companies like Brenntag India, which is in the chemical the chemical distribution business and caters to a wide array of companies in the food, pharmaceutical, home-care, coatings, animal nutrition, lubricants, agro, and electronics sectors, decided to concentrate its energy on getting its essential supply chains running.
LANXESS, a German speciality chemicals company that supplies to many industries such as agrochemical, pharmaceutical, refinery, FMCG, food, and more and also has manufacturing units at Jhagadia in Gujarat and Nagda in Madhya Pradesh, was also given permission to run its facilities at a lower capacity utilisation but with restrictions.
Meanwhile, companies like Panasonic Life Solutions, which has a revenue turnover of INR 4000 crores revealed that this manufacturing slowdown had no impact on its business until the month of June, although, it lost out majority of its revenue during March sales, which are considered to be the highest.
By the end of July, many manufacturing sites were operational at significantly lower capacity utilisations and output due to the restrictions in place. However, for manufacturing firms who were producing non-essential goods, there developed other challenges such as sudden shutdowns and absence of maintenance staff that would help the plant run, with the government allowing only 1-3% of the staff to maintain the plants.
In the month of August, the factory activities grew for the first time in five months, but the bounce was unlikely to signal a quick turnaround in the Indian economy, which contracted at its steepest pace on record of 23.9% annually, last quarter, while it was expected to be under recession throughout the year. The August data highlighted the upscaling developments of the Indian manufacturing sector, signalling towards a slow recovery from the second quarter. Overall the demand and output for goods reached a new height since the month of February and increased for the first time in five months, although foreign demand contracted for the sixth time in a row.
India’s factory activities increased at its fastest pace in over eight years in the month of September as relaxation in the government restrictions due to the COVID-19 pandemic drove a surge in output and demand. The manufacturers across the nation increased their outputs for the second straight month in September amid loosened restrictions, such as the unlocking of state borders, lesser travel restrictions and others, and a significantly larger demand. The increase was deemed as sharp. Although, the input prices followed a slower increase in September, manufacturers raised their selling prices after having cut them since the month of March in order to secure sales. Back-to-back increase in new business inflows was observed, and the rate of expansion was the fastest since early 2012. Moreover, the exports bounced back following six successive months of contraction, while inputs were sold at a sharper rate and the business confidence also strengthened. The September increase in input was considered to be the strongest in over eight-and-a-half years.
As the manufacturing sector is increasing at a steady speed, about one-third of the manufacturers expect to turn this steady growth into a faster pace in the upcoming 12 months, against 8% that foresee a contraction in the sector, resulting in the strongest degree of overall optimism in over four years.