Chennai Lockdown: Chennai and the locked down districts have many leading tier-1 manufacturers of auto components.
Chennai Lockdown: When Tamil Nadu (TN) CM Edappadi K Palaniswami called for a total lockdown in Chennai, Kancheepuram, Tiruvallur and Chengalpattu to be implemented during June 19-30, it came as a bit of a shock. The CM had assured the High Court a few days earlier that there will be no further lockdowns.
In the battle between life and livelihood, the CM has chosen life. Apparently, doctors and bureaucrats strongly recommended a tight lockdown. There has been a steep rise in the number of cases, with over 2,000 being reported daily (exceeding 1,000 in Chennai). However, the lockdown is going to make economic recovery more difficult. It is a political test for the CM as he will be facing elections around this time next year.
The state had been gradually lifting the lockdown since last month and factories had been allowed to open subject to some rules and guidelines. For Chennai with its production units for Hyundai, Eicher, Ford, Renault, Nissan and BMW, among others, this was much-needed relief. Hyundai is likely to face significant disruption as it was planning to increase production of Venue and Creta in the coming weeks. .
Not only cars and two-wheelers but also earth-movers, tractors and railway coaches are also manufactured in Chennai. There is an entire ecosystem built around OEMs. Chennai and the locked down districts have many leading tier-1 manufacturers of auto components.
Most of the automakers restarted production in the first week of May, after the lockdown was eased. “What is happening now in Chennai is not a double whammy, but a triple whammy”, says a frustrated components manufacturer. As the auto sector saw an unprecedented boom till about three years ago, all major manufacturers went in for huge capacity expansion. They have also gone in for automation. But, this is not the case with MSMEs that have grown along with the OEMs. They cannot afford automation. A tier-3 components manufacturer with a `100 crore turnover says, “We have 520 employees in our unit. There was zero turnover during April and May. Just as we started production, the lockdown happened again. We cannot fulfil orders coming from Gurgaon or Maharashtra”.The company has found no alternative to downsizing.
TN has the largest number of MSMEs in the country, many that survived on daily cash flows and are now decimated. Entrepreneur KE Raghunathan, former president of the All India Manufacturers’ Organisation, says that banks and NBFCs have not been helpful. “Many small units are closing down as they cannot even pay rent. There have been about 50% job losses. MSMEs find it very difficult to deal with financial institutions. It is tough to close a business as well. Entrepreneurs are a confused, insecure lot now. The stimulus package has been an utter failure. With yet another lockdown, export orders are getting diverted to other countries. These usually don’t come back. MSMEs face problems of finance, demand and labour. Many of them are also dependent on migrant labour”, he says.
Chennai’s retail sector provided a lot of employment to aspirational young people from smaller towns. “I somehow managed to make some payments till June. I cannot pay any salary next month. We are not sure when the demand will pick up for non-discretionary spending”, says a large textile retailer in the normally very crowded T Nagar, the centre of retail trade in the city. He adds that people will concentrate on saving and not spending. “Without consumer demand, nothing is going to move”.
The Tamil film industry has been a major job provider. All daily wage earners, who depended on shootings, have nowhere to turn to. Theatres being closed have added to the problem. It is difficult to quantify job losses. This is another tough situation.
During the early days of Covid-19, TN did very well. It managed to trace and contain the spread by tracking down the 1,000-odd Tablighi members. When things seemed to be under control, for no reason, the CM announced a lockdown within the lockdown between April 24 and April 28, without giving sufficient notice. This led to panic buying and overcrowding at shops. Koyambedu, Asia’s largest vegetable wholesale market, saw people milling around without any distancing. It became a major hotspot in the city. Chennai’s population density is more than 25,000 persons per square km, and the disease has spread like wildfire.
Now, the government has redefined its zonal and ward strategies. More testing is done in TN than anywhere else in the country, with 30,000 samples being tested daily.
Palaniswami became TN’s CM after its charismatic leader J Jayalalithaa passed away. Nobody thought he would last long. He was a lacklustre leader who was seen as being close to Jayalalithaa’s companion Sasikala. He outmanoeuvred both the Sasikala faction, her nephew TTV Dhinakaran, rival O Panneerselvam and the opposition DMK, and dug his heels in firmly. He has made peace with the Centre and is accused of being too close to Delhi for comfort.
So far, he has been able to hold his critics at bay. He is supposed to rely on a group of trusted bureaucrats for guidance. He was the first CM from the state to go on a three-nation tour to drum up investments.
With only a year remaining for state elections, how Palaniswami emerges from the current crisis will decide his future.