The nationwide lockdown announced by the government is estimated to result in a production loss of Rs 30,000 crore to the auto parts industry which employs more than 5 million people.
With a three-week lockdown announced by the government, production has come to a standstill in the automotive industry across the country.
Auto component manufacturers, especially in Tier-2 and Tier-3 regions are facing hardships on the cash flow, which if not immediately addressed will lead to insolvency of several companies, a note from the association of component makers (ACMA) said.
Vinnie Mehta, director-general, Automotive Component Manufacturers Association said, “The industry was already under pressure due to plummeting sales and there was also uncertainty from BS4 to BS6 [shift]. Everything has come to a standstill. We do not know how long it will last. There is a production loss of Rs 1,200 crore a day for the component industry.”
The auto component industry contributes 2.3 percent to India’s GDP, 25 percent to manufacturing GDP and employs over 50 lakh people. In 2018-19, the turnover of the industry stood at $57 billion with $15 billion in exports.
The closure of global markets such as the US, Italy, Germany and the UK will have a significant impact on the component industry. About 33 percent of the industry’s exports go to Europe and about 25 percent go to the US. Economies of both regions will be subdued for several months after the pandemic subsides.
ACMA has made certain pleas to the government to help them tide over the situation.
Relaxation of borrowing norms & statutory payments for meeting working capital needs. Norms for NPA recognition should be eased by extending a moratorium on payment of principal and interest by at least 1 year.
Relaxation in fixed electricity charges and relaxation of levy demurrage charges for at least seven days for import cargo clearance are some of the industry’s demands.
Despite the challenges, members of the auto components body have decided against cutting down any jobs or salaries.
“The industry has decided to pay the salaries of everybody, irrespective of their position in the company for the whole of the month. In fact, quite a few of them have already paid and they have also taken a cal that there will be no lay-offs,” added Mehta.
Over 1 lakh contractual employees have already been paid their salary for the month of March. Further, several component manufacturers have promised to extend medical aid to their employees including contractual workers in the unfortunate event of them or their family members contracting the Novel Coronavirus.