Impact of stimulus measures on manufacturing industry

May 29, 2020 4:00 pm

The unfolding of COVID-19 pandemic is a human crisis of historic scale and complexity. Along with an unprecedented human toll, COVID-19 has triggered a deep economic crisis. To curb with this crisis, “Prime Minister Narendra Modi’s pledge of a total spending of Rs 20 lakh crore to weather the fallout of coronavirus pandemic is among the largest economic stimulus package announced by nations around the world. This package would focus on land, labour, liquidity and laws, and would deal with such sectors as cottage industries, MSMEs, the working class, middle class and industry. Also, this package will empower the poor, labourers and migrant worker, both in the organised and unorganised sector.

In this context, VDMA India organised a webinar on the topic “CEO panel discussion on Impact of stimulus measures on manufacturing industry” with an aim to provide insightful overview on stimulus package and highlighting certain aspects of this package for the manufacturing industry.

The discussion was moderated by Rajesh Nath, Managing Director, VDMA India and with special address on this topic from guest speaker Himanshu Srivastava, Head Business advisory services vertical at ASA & Associates LLP. Esteemed panelists were

Vivek Norman – Managing Director, Netzsch Technologies India

Sunil K Gupta, President, KION India

P L Muthusekkar, Managing Director, Nord Drivesystems

Hemant Watve, Managing Director & CEO, WILO Mather and Platt Pumps

Anil Kumar, Managing Director, CERATIZIT India

The government announced the much awaited and anticipated 20 L crore stimulus package (equivalent to around 750 Billion Euros) to weather the fallout of coronavirus pandemic. PMs Atmanirbhar Bharat Abhiyan or Self-reliant India Mission is about 10 percent of India’s GDP in 2019-20 and the stimulus package would rank behind Japan, the US, Sweden, Australia and Germany. Addressing on this point, panelist Himanshu Srivastava said, PM Modi announced special economic and comprehensive package to be known as Atmanirbhar or self-reliant India movement establishing 5 pillars of Self-Reliant India:

1. Economy
2. Infrastructure
3. System
4. Vibrant Demography
5. Demand

Further he said, announced package caters to various sections including cottage industry, MSME’s, Labourers, Middle class, Industries, among others. While speaking about the various sectors, he emphasises on insights of stimulus package for manufacturing and MSME’S because this sectors are backbone of the Indian economy and also, the second employment generation sector for India. He pointed out difference between classification of existing and revised MSME’s on the basis of invest and turnover threshold. Investment up to 10 million and turnover of up to 50 million organisation can be define as Micro; Investment up to 100 million and turnover up to 500 million can be define as Small; and Investment up to 200 million and turnover up to 1000 million can be define as medium. This revised MSME’s classification would give perspective to manufacturer on India relief package for MSME’s, also manufacturer will know whether they comes into category of MSME’s and would they will be eligible to avail relief package. Also, he mentioned that government has taken initiative for MSME’s to fight against liquidity crunch in this difficult time. With taking into account of this initiatives, he said, availability of emergency credit for Businesses/MSMEs from Banks and NBFCs upto 20 percent of outstanding borrowings [for borrowers with INR 25O million outstanding credit and turnover of INR 1 billion], and this loan will be available with a 4 year’s tenure and moratorium of 12 months on principle payment. In the view of equity infusion into MSME’s, government is Setting up of a ₹500 billion Fund of Funds.

He also added that impact of all these initiatives are likely to help Indian manufacturers to resume business and fortify the supply chains, cutting down on import dependence by local substitution while improving quality and safety compliance, promote make in India and aims at gaining share of global market.

Unlike most relief packages announced globally, Rs 20 lakh crore is not entirely in new spending and includes Rs 1.7 lakh crore package the government had announced in March as well as the steps taken by the Reserve Bank of India (RBI) such as liquidity enhancing measures and interest rate cuts. The basis of stimulus package is the strengthening of the five pillars — economy, infrastructure, system, demography and demand which is anticipated to pave the way for India returning to a higher sustained growth path again.

However, there is a general feel that the Stimulus package is more a jugglery of numbers and direct benefit is perhaps limited. So, a little deeper into these measures and the questions were asked to our esteemed panelists about their view and feel on stimulus package.

MSME contribute to around 29 percent of GDP and 40 percent of exports and employs around 11 crore people. MSMEs, have been badly hit due to Covid-19 and needs additional funding to meet operational liabilities, buy raw material and restart business. The government will infuse Rs 50,000 crore for MSMEs as well as 3L crore collateral free loans which will benefit 45L standard MSMES. With opinion on these step adequate to support the MSME’s, KION mentioned that, first challenge face by Industry is eligibility criteria issue and according to government there are 63 million MSME’s in India, it is account for 25 percent of GDP and 30 percent of Indian labour force. With change of definition of MSME’s the no of MSME’s in India is close to 65 million. So, this package is not adequate to cover MSME’s sector.

With announcement from the Government that there will be no global tenders for government procurement upto 200 crores. According to Ceratizit, it will also give boost to MSME’s so that they will participate into this tendering and in the government procuring process.

Also, Make in India flagship will emerge as a key catalyst for attracting new investment, driven by much needed bold reforms in the areas of land, labour and liquidity. Some of the states in India like UP, MP, Gujarat and Karnataka have announced labour reforms and according to Nord DriveSystem, Make in India will give boost to automation and focus on local market, and it will be very good recipe for success for India MSME’s. In view of labour reforms, it should have been a national reforms instead state reforms because if company has factory in multiple state then with national reform they can put equal labour reforms on each factory despite they are at different part of India.

When panelists were asked to speak on the reforms and add their views on its benefit for the industry, Wilo Pump, labour reforms has to implement throughout the nation not with the state reforms. The new reforms will also help to acquire land and if you don’t have capital to purchase land for factory then government is providing rental land facility for industry. Also, in future government will be ranking in view of ease of doing business by each state and these crucial steps would definitely help industry to be succeed.

Further, when asked about impact of stimulus package on Food and Agriculture sector, Nord DriveSystem mentioned, 1 lakh crore fund is allocated for strengthening the farm gate infrastructure like cold chains, post-harvest storage infrastructures etc. Rs 10,000 crore fund for micro food scheme will be executed with cluster based approach. This move will benefit 2 lakh Micro Food Enterprises.

Reforms for the farm sector including a new central law to allow farmers to sell their produce freely and get better prices as well as a ₹1.5-lakh-crore package to strengthen infrastructure and logistics to help value addition. The Essential Commodities Act will be amended to deregulate trade in cereals, edible oils, oilseeds, pulses, onion and potato, and stock limits for these will be imposed only in exceptional circumstances. A new central law will be formulated to provide barrier-free inter-state trade of farm produce and more freedom for farmers to sell directly or even online.

In the view of Mining Sector reforms and how this will benefit the industry, Netzsch Technologies mentioned that commercial mining is being introduced in the coal sector and the age-old government monopoly is being removed. The commercial mining of coal will be done on a revenue sharing basis. An amount of Rs 50,000 crore is being provided for evacuation infrastructure in the coal sector. At least 500 mining blocks would be offered through an open and transparent auction process for the commercial mining initiative. There will also be a joint auction of bauxite and coal mineral blocks to enhance the Aluminum industry’s competitiveness. The investment of Rs. 50,000 crore is for the evacuation of enhanced CIL’s (Coal India Limited) target of 1 billion tonnes of coal production by 2023-24 plus coal production from private blocks. The distinction between the captive and non- captive mines will be removed to allow transfer of mining leases and sale of surplus unused minerals in the Mineral sector.

When panelist asked on the impact and benefits into power sector, Wilo Pump mentioned, power distribution companies will get Rs 90,000 crore liquidity against receivables from stateowned Power Finance Corporations and Rural Electrification Corporations. This will allow these discoms to pay dues to power producers. Electricity distribution companies in Union Territories (UTs) will be privatised and a tariff policy that does not burden consumers with distribution companies’ inefficiencies will be guaranteed.

Further proceeding on the discussion, when questioned asked on the impact towards Defense sector, Ceratizit mentioned, foreign Direct Investment limit in defence manufacturing under the automatic route is being raised from 49 percent to 74 percent. For self-reliance a list of weapons and platforms will be notified and a ban imposed on import with year-wise timelines. There will be indigenisation of imported spares so that defence equipment is both made and bought in India Adding a point on the Aviation sector, KION pointed out that restrictions on the utilisation of Indian Air Space will be eased so that civilian flying becomes more efficient. Government will bring a total benefit of Rs 1000 crore per year for the aviation sector. A total of six airports will be up for auction by the Airports Authority of India (AAI) and it will be done on a Public Private Partnership basis. India will also be promoted as an MRO hub to save on additional costs for the aviation sector.

As a percentage of the GDP, we are actually only spending 1.2-1.3 percent. Given that 60 percent of Indian economy is a consumer-driven economy and we are not China which is an investment-driven economy, 60 percent of the economy needs help and that is where the money is not going to come. The Centre’s ₹20-lakh-crore package does not do much to boost consumption in the short term, and that could act as a drag on growth. According to Nord DriveSystem, Stimulus package by government will be shortfall and when comes to consumerism, consumer should have money to buy the product.

Before concluding, VDMA India also conducted polls with the attendees. One which was, what industrialist feel about the timing of the stimulus package, and the response from the audience were astonishing, 44 percent audience felt package should have been announced earlier and 56 percent audience felt it is appropriate time to boost business. According to this poll most number of audience felt that this is right time when government has announced stimulus package.

Before concluding, VDMA India also conducted polls with the attendees. One which was, what industrialist feel about the timing of the stimulus package, and the response from the audience were astonishing, 44 percent audience felt package should have been announced earlier and 56 percent audience felt it is appropriate time to boost business. According to this poll most number of audience felt that this is right time when government has announced stimulus package.

The second poll was conducted among the audience was, which sector would benefit the most from the reforms? The 57 percent audience felt agricultural and food sector will be benefited and followed by mining 13 percent, Power 11 percent, Defense 17 percent and with very less 2 percent will be benefited by aviation sector.

The third poll was conducted with audience was, would the stimulus package drive the Make in India program? The 64 percent audience felt more initiatives would have needed from government and 34 percent agree with that and 2 percent audience felt stimulus package will not drive Make in India initiatives.

The third poll was conducted with audience was, would the stimulus package drive the Make in India program? The 64 percent audience felt more initiatives would have needed from government and 34 percent agree with that and 2 percent audience felt stimulus package will not drive Make in India initiatives.

The fourth poll among audience assess their view on to boost revival what does the industry need, responding to this 70 percent of audience felt demand generation is very important to boost industry, followed by liquidity 27 percent and 2 percent felt availability of labour force would be important.

Finally, Nath concluded the discussion saying that the measures announced by the government have been a mix of short-term and long-term, with focus on building the capabilities for the small players in the economy as well as paving the way for structural changes in certain sectors. The reforms are anticipated to provide an impetus to those sectors which are new areas of growth, unleash new investment opportunities, lead to more production and in turn generate more jobs. Hence the big question that remains on everyone’s mind is Will the big bang financial package be the silver lining at the end of country’s stormy night? The webinar received an overwhelming response as maximum registration limit of 100 participants from the industry and German engineering fraternity was attained within 40 Sec of starting the webinar.