The nationwide lockdown in April, coupled with a crash in export orders led to unprecedented contraction in manufacturing output, said the monthly Nikkei India Manufacturing Purchasing Managers’ Index (PMI) survey released on Monday.
On a worrying note, the survey pointed out that reduced demand led to new businesses collapsing at a record pace in April, while firms sharply pared their staff numbers.
Manufacturing PMI stood at just 27.4 in April, showing the sharpest deterioration in business conditions across the sector since data collection began over 15 years ago. In PMI parlance, a figure above 50 means expansion, while a score below that denotes contraction. PMI had already been on a downward curve, registering 51.8 in March, much below the eight-year high of 55.3 in January.
Despite industrial activity being partially opened after April 20, manufacturing activity could not resume fully as lack of labour and raw materials remained widespread while supply chains could not be established, industry bodies said. “After making it through March relatively unscathed, the Indian manufacturing sector felt the full force of the coronavirus pandemic in April,” said Elliot Kerr, economist at IHS Markit.
Tough situation
India’s overall industrial production rebounded in February to a seven-month high of 4.5 per cent, up from January’s 2 per cent. Figures for March, set to be released next week are expected to be slightly hit since lockdown began late in the month, on March 25. But it can take a bad turn given how the output of the 8-core sectors of the economy saw a record contraction of 6.5 per cent in March.
However in April, the PMI survey pointed out widespread business closures amid demand conditions remaining severely hampered. New orders fell for the first time in two-and-a-half years and at the sharpest rate in the survey's history, far outpacing that seen during the global financial crisis.
Prime Minister Narendra Modi on Monday conveyed to chief ministers that the country will have to give importance to the economy as well as to continue the fight against coronavirus.
The prime minister interacted with chief ministers as in a video conference and highlighted the importance for states to enforce prescribed guidelines strictly in the hotspots, the government said in a statement.
The prime minister also underlined that the lockdown has "yielded positive results as the country has managed to save thousands of lives in the past one and a half months."
"Prime Minister said that the country has seen two Lockdowns till now, both different in certain aspects, and now we have to think of the way ahead. He said that as per experts, the impact of coronavirus will remain visible in the coming months," the statement added.
Civil defence officials wear protective suits to help a man who was lying on the roadside near Hebbal flyover during a nationwide lockdown imposed in the wake of novel coronavirus pandemic, in Bengaluru. Photo: PTI
Civil defence officials wear protective suits to help a man who was lying on the roadside near Hebbal flyover during a nationwide lockdown imposed in the wake of novel coronavirus pandemic, in Bengaluru. Photo: PTIModi also said that masks and face covers will become part of the lives of people in the days ahead, adding everyone's aim must be to ensure rapid response under the current circumstances.
Among those present at the virtual meet, included Home Minister Amit Shah, Health Minister Harsh Vardhan, and top officials from the PMO and the Union Health Ministry. The chief ministers who attended the meeting included Arvind Kejriwal (Delhi), Uddhav Thackeray (Maharashtra), E K Palaniswami (Tamil Nadu), Conrad Sangma (Meghalaya) Trivendra Singh Rawat (Uttarakhand) and Yogi Adityanath (Uttar Pradesh).
This is Modi's fourth such interaction with state chief ministers since March 22 when he first spoke to them on the coronavirus situation. Two days later on March 24, Modi announced a 21-day nationwide lockdown, which was further extended till May 3. Besides discussing the way forward in dealing with the pandemic, the prime ministers and chief ministers also focussed on a "graded" exit from the lockdown.
With the lockdown-driven suspension of production and panic buying helping clear stocks, tea plantation companies are expecting a major price surge in May once the second flush season begins.
Industry officials noted that there has already been a shortfall of around 90 million kg (mkg) during March and April, and most of the 50 mkg of tea inventory has been sold as packaging companies bought whatever was available in anticipation of an extension of the lockdown and the resultant surge in consumer demand.
“There is practically no tea in the system now and only small quantities being produced by the south Indian companies. Given this situation and the current loss of production, prices should be healthy once tea starts hitting the market again,” Atul Asthana, managing director, the Goodricke Group told Business Standard.
Though major producing states such as Assam and West Bengal have allowed plantation to commence in a move that should ideally help production and bring tea back into the eco-system, major companies are of the view that there will be no production this month. Assam produces over 50 per cent of the tea in the country while West Bengal accounts for 27 per cent of the total.
“The production loss has already been incurred and even if plantations resume operations, there will be practically no tea available”, D P Maheshwari, managing director at Jay Shree Tea and Industries told Business Standard.
Vivek Goenka, executive director, Warren Tea explained that owing to estate closures before, the bushes are already overgrown and skiffing needs to be done first before any production can take place. This skiffing acitivity usually takes 7-10 days but may stretch longer given the limited manpower availability.
While Assam has sanctioned a maximum of 50 per cent of the total workforce in an estate at a time, the allowed limit in West Bengal is even lower at 25 per cent.
“Usually during this time, we need to deploy all the manpower available with us but now I don’t know how production and skiffing activities will progress given the cap,” Maheshwari added.
Rating agency Icra said that it expects tea estates to substantially reduce the number of temporary workers during the period of low production.
“Nonetheless, the impact of a reduction in production, because of fixed costs and loss in contribution, is estimated to increase the cost by nearly Rs 15 per kg on the balance production during the rest of the year, assuming that normal production returns by the time second flush teas become available. Any decline in production in the second flush teas would result in a substantially higher cost per kg,” Icra said.
Companies are optimistic that the lockdown situation will improve May onwards and by the time the second flush season begins in the third week of May, skiffing and pruning activities will be over and manpower deployment conditions will improve as well.
“I think by the time the second flush production begins, things will normalise to a large extent”, Asthana added.
Tea buyers, however, cautioned that given the uncertainty in the economy owing to the pandemic, there is still some doubt about price movements.
“We have noticed that consumers are already stocking up essential as well as non-essential items and there exists much doubt in consumers’ mind about the future as companies may resort to retrenchment or salary cuts. As a result, discretionary spends like tea may get affected,” a buyer said.
Icra has also cautioned that while ideally prices should improve sizably under a normal demand-and-supply scenario, but the current scenario is that of uncertainty.
“The trend in export as well as domestic demand would be the main factors determining the trend in tea prices. Most of the premium export markets of Indian teas are suffering under the Covid-19 outbreak. Apart from any decline in demand, logistical issues could also have an impact on the volume of exports to those countries,” the agency noted.
