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Vol. XXIX No. 11, September 16-30, 2019
When an economy recedes…
By The Editor
The statistics are all in and the newspapers are full of horror stories. The automotive sector is plunged in gloom owing to near-zero off-take for a variety of reasons. Plant after plant is announcing production cuts, planned maintenance holidays, closure for certain days of the week and above all, layoffs. The impact of this is spreading, as is evident from a prominent biscuit-maker announcing job cuts chiefly because their products had bulk sales at auto factories for supply at the canteens and this demand has come down drastically. The question is, how is Chennai to weather this crisis and what is its impact likely to be?
The city is one of India’s three automotive centres, the other two being Gurugram (Gurgaon that was) and Pune. There are three important clusters here – Oragadam, Maraimalai Nagar and Sriperumbudur-Irungattukottai. Chennai churns out one car every 20 seconds and one commercial vehicle every one-and-a-half minutes. Last year, the State accounted for 45 per cent of India’s vehicle exports and since the Chennai port is the biggest in Tamil Nadu, it would be safe to assume that much of the cargo left from here. However, with export markets not yet shrinking, having been flat for over a year now, the worry is more the near-total domestic collapse. That is pinching Chennai, for apart from the end products it churns out, it also makes around 33 per cent of India’s auto parts.
The immediate fallout has been a cut in jobs. The first to be axed are the contract labourers who, as their categorisation suggests, have no job security. The statistics are not out, and most of those turned away are not speaking, but it appears that the numbers without work may be as much as 10 to 15,000 in each of the three automotive sectors. There has been a sharp drop in the daily wage payable to these workers and it is said that they are desperate to take on any activity to keep the home fires burning. The next major impact will be on the auto ancillaries, of which Tamil Nadu has the highest number in the whole of India. The State also has the highest concentration of medium and small manufacturing enterprises, around 16 per cent of India’s total, with an outlay of Rs 32,000 crores. Most of these are very badly affected and may soon begin closing down.
This rout of what was till recently a thriving industry will soon have its ripple effect across the city. The real estate sector, which is yet to recover post the demonetisation exercise and the implementation of GST, will be hit hard as many contracted buyers may default on payments owing to lack of a salary and others will postpone purchase decisions for a time of greater stability. Consumer durables, other than automobiles that is, are at present holding steady but the head of a nationwide chain of retail outlets has predicted that what they can hope for at best is zero growth this year and if the trend continues there could be bad news on this front also. The IT sector is bracing itself for job cuts as the auto debacle hits it eventually. This is a field where there are no unions but talks are already gaining ground on the necessity for such a protective net. Lastly, support services such as cab aggregators and food delivery facilities that have in the recent past seen a huge rise in employment, may also face the heat owing to lack of demand.
It is to be hoped that this recessionary trend is a temporary one and may be reversed, what with the Government announcing various steps. However, it must also be remembered that this is certainly not the first such situation the city has faced and it certainly will not be the last. What is needed is sanguinity to face the crisis, hope for better days and above all, be prepared in future for such trends to recur.
