Thursday, 18 August, 2022
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Why a lockdown of 40 days is forcing Indian companies to write-off an entire quarter

Resumption of activity after 40 days won’t help salvage economic growth this quarter, or even the fiscal year, as the lockdown decimated India’s consumption.

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New Delhi/Kolkata: M.S. Unnikrishnan’s main focus nowadays is to get his 10 factories in India up and running as the nation slowly starts to exit the world’s strictest stay-at-home restrictions.

Unnikrishnan, managing director of Thermax Ltd., a maker of energy efficient cooling equipment, is still awaiting permission to reopen three more. From Thermax to Kalyani Steel Ltd. companies are slowly being allowed to resume operations from Monday even though the lockdown has been extended for two weeks.

Resumption of activity after almost 40 days won’t help salvage economic growth this quarter — or even the fiscal year– as the lockdown decimated consumption, the main driver of Asia’s third-largest economy. Majority of chief executive officers in a survey by the Confederation of Indian Industry expect domestic demand to take six to 12 months to return, while 45% see economic normalcy to take more than a year after the lockdown ends.

“This quarter would be a write-off for entire India. By second quarter, we will learn to live with the disease,” Unnikrishnan said in a phone interview on Sunday. “How fast can we restart the economy engine is the question right now.”

It may not be fast enough. Factories that have opened are operating at about a third of their capacity and others are seeing demand for their products have evaporated. Star Cement Ltd., the most profitable maker of the construction material in India, saw demand fall 80% at a factory it recently reopened.

Prime Minister Narendra Modi ordered factories to shut from March 25 and allowed some to reopen starting April 20. Modi met with ministers and government officials on Saturday to formulate ways to restart Asia’s third-largest economy.

Meanwhile top carmakers, that couldn’t ship a single vehicle to dealers in April, are still not sure when they will be able to resume production.

The complete shutdown may result in a rare contraction in growth, according to economists. Unnikrishnan said he expects localized lockdowns to happen more frequently.

India reported the biggest single-day spike in infections on May 2, recording more than 2,400 new cases, according to data from Johns Hopkins University. Those numbers now stand almost at 40,000 cases and more than 1,300 deaths.

“Covid-19 has had an unprecedented impact. It’s the biggest risk as we look into the future,” said Srinivas Phatak, Hindustan Unilever’s chief financial officer in a post-earnings call with reporters last week. “It’s difficult to estimate the pace of recovery. There’s still a lot of disruption and business is not back to normal.”

Rules Eased

ITC Ltd., India’s largest cigarette maker, that also makes instant noodles, soaps and incense sticks, said it will work with local administrations to resume operations where possible with the stipulated precautions.

“The company is in a state of readiness for different scenarios,” a spokesperson said in a text message. “It remains imperative that progressively the entire value chain from sourcing to manufacture to distribution functions optimally to scale up economic activity and generate the critical livelihood opportunities.”

Industrial establishments in urban areas, including special economic zones, will be allowed to operate. That includes manufacturing units for essential goods, including drugs, pharmaceuticals and medical devices and IT hardware production, the Ministry of Home Affairs said in a statement on May 1.

“Lockdowns will happen regularly hereafter,” only that it may not be announced by the federal government, according to Thermax’s Unnikrishnan. “There will be location-wise lockdowns, but it is going to happen. That will continue for a very long period.”- Bloomberg

Also read: Coronavirus lockdown subdued ‘animal spirits’ of Indian economy in March


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