Way Forward For Manufacturing Sector

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TOPIC: General Studies 3

• Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
• Inclusive growth and issues arising from it.

In News: The year 2020 didn’t get onto the most prosperous start. Most of the countries are under lockdown, widespread travel restrictions, and manufacturing closures have become a commonplace due to the coronavirus outbreak. The global economy, and sectors like tourism and supply chains are in total disarray.

First, many manufacturing jobs are on-site and cannot be carried out remotely: The industry is especially vulnerable given that the bulk of its workforce is employed in on-site jobs that cannot be done remotely. Additionally, given the nature of the industry, manufacturers will need to consider how to create social distancing in workplaces that are typically worker-dense (e.g., manufacturing plants, warehouses, material movements and logistics, etc.)

Second, slowed economic activity will likely reduce demand for manufacturing products globally: Additionally, manufacturers need to prepare for major global supply chain disruptions. Manufacturers are experiencing continued weakening links in their supply chain, as some vendors and suppliers are facing operational or financial struggles of their own.

The Impact it had…

COVID-19 is severely impacting manufacturing production in developing countries because:

1. Demand from high-income countries for manufacturing goods and raw materials is decreasing
2. Value chains are being disrupted due to delays in the delivery of necessary components and supplies from more technologically advanced countries
3. Other factors, including policies (e.g. restriction of movement of goods and people), inability of employees to reach the workplace or financial constraints, which affect the normal production process

UN economists have estimated a USD 50 billion decrease in manufacturing production in February 2020, and the IMF warns that 

• The negative economic effects will be felt “very intensively” in developing countries that sell raw materials. 
• All these negative channels will inevitably have an impact on exports from developing countries. 
• The losses in export volume will be further intensified by the decline in energy and commodity prices. 

UNCTAD projects that developing countries, as a whole (excluding China), will lose nearly USD 800 billion in terms of export revenue in 2020.

There is also the case of scarcity of products and a disruption of supply chains: China has been the factory to the world. With companies across the world dependent on China for its manufacturing prowess, brands are already experiencing a hit in their supplies.

The change in consumer behaviour as they take protective actions against the virus is likely to have immense social and economic impact.

Steps taken by Government to ease conditions for the manufacturing sector to resume operations

1. Allowing industries outside limits of municipalities and municipal corporations to start operations
2. Freeing up transportation of goods
3. Setting guidelines for the movement
4. Stay of labour
5. Matching skill-set of labour to jobs available, at their temporary place of residence

This could help companies to re-start operations. Companies, who had cut production, can now plan to bring back operations to normal levels.

The Way Forward for Manufacturing

The industry needs to prepare for a prolonged recovery. Given the unknown variables of how the COVID-19 pandemic will play out and when containment will be achieved, manufacturers should brace for a trying period and plan for a recovery that may not arrive for at least one year, based on prior crises the industry has experienced.

Manufacturers will also need to look beyond their own economic viability. They will need to coordinate closely with the public sector to forge plans that are essential to both public safety and the solvency of their workforce, while keeping the lights on in their operations. This will be relevant to manufacturers of critically important components, parts and finished goods in areas of importance to the nation — especially those supplying to critical infrastructures (e.g., energy and power, transport, communications, food and agriculture, etc.). 

Governments have also started to extend support to manufacturing companies. Government stimulus packages announced so far are seen as a welcome step to alleviate the immediate economic damage caused by the pandemic, assisting severely hit businesses and promoting job retention.

Policy measures that can bring some relief can be on the lines of –  

• Extending lines of credit
• Reducing infrastructure costs
• Providing short-term funding
• Lessening the tax burden
• Providing supply chain support that could assist manufacturers in responding to and anticipating necessary adjustments
• Manufacturers can expect to enter a new era of closer public-private coordination in order to strike the right balance between producing critical products and protecting public health.
• Transfer new knowledge throughout the supply chain. Update best practices as the situation evolves and assist suppliers in implementing them. 

Connecting the Dots:

1. The deeper into the supply chain, the greater the impact of the outbreak is likely to be. Discuss.
2. How has the Coronavirus impacted the global supply chain? Suggest some structural reforms that will help the sector be better prepared for a crisis of this scale.