It is important to keep up everybody’s morale. We have to believe in ourselves. That we will fight back and emerge much stronger from this crisis.
Interview Date: April 21, 2020
Where Were We: The Covid-19 onslaught was in early stages, with the total cases less than 20,000. This was Day 28 of the lockdown, and it had already started to show impact on world economies, including India. IMP had predicted an annual contraction of 3 percent for Global GDP. Looking back, that figure appears optimistic. As of the first week of September, 2020, at the time of publishing, IMF predicts a 5 percent contraction for 2020 for the global economy, and India is among the worst hit.
Be that as it may, this interview was done during the early weeks of the crisis, but both the speakers, Gautam Maini, MD, Maini Precision and Rajesh Doraiswamy, Jt. MD, Salzer Electronics Ltd. were far more prescient and accurate in their analysis and predictions of the situation. Presenting, edited excerpts.
KEY TAKEAWAYS
Gautam Maini
- Some positives could be that people will become very efficient, they are going to innovate and think out-of-the-box. There will be a lot of low-cost automation. A lot of ideas could emerge that could provide big gains.
- It is important to keep up everybody’s morale. We have to believe in ourselves. That we will fight back and emerge much stronger from this crisis.
- First, there needs to be a realization that we are going to emerge in a different world, a new normal. For one, it has taught all of us the utility of work for home. We have a lot of our engineers connected to our system, designing from home, which we never did before. It was not that the technology was not available before. But this crisis enabled the shift.
- The whole infrastructure around the whole corporate office structure will change. Business travel will take a long time to recover. Only the machine and operators are not going to change much, except that one will have to find ways to operate more machines with fewer operators, since the crisis has limited the number of people who can come in.
- Most of the large companies procure between 40 to 70 percent of their products from a global supply chain. Therefore we can be really competitive and make the best of this huge opportunity. We should go out and get it.
Rajesh Doraiswamy
- Taking an optimistic view, in any crisis, there is an opportunity. The bigger the crisis, the bigger the opportunity. India is well placed for this opportunity, when we come out of this. Government support will lead the way for transformation of the economy.
- Every sector is hit due to this covid crisis; even those companies that mostly export, or those with higher automation or those who have a lower dependency on supply chain.
- There are certain aspects that have been lacking in the manufacturing sector. One of them is workers’ productivity. On an average it is almost 4 to 5 times lower than that for China, Indonesia, Thailand, and Vietnam, etc.
- Quality systems and processes, maintenance, talent management including skill upgradation are some of areas where even large companies [in India] have not really done very well compared to global standards.
- There has to be a better degree of certainty in policy making. That has been lacking in the country for quite some time, at least for the last 10-12 years. There needs to be a clearcut, unambiguous policy direction from the decision makers.
- I am sure that we will definitely see a lot of new opportunities not seen before. Global companies are seeking to diversify production sources to be used beyond China. It started earlier during the trade war. India is definitely among the best placed countries with a massive educated working population.
What is the situation on the ground?
Gautam Maini (GM): There’s a mixed feeling. The first thing is you realize that you have so much of time as everybody is at home but then we need to start working really very hard because of the significant impact of the crisis. Everyone is resetting to a new world. Never in our lifetime have we experienced something like this. I am sure that everybody is experiencing the same thing.
In our own case we opened our aerospace division a couple of weeks ago. People who are coming are really motivated. Only about 10 percent of the staff made it to the offices, but those who did, let me tell you that they are energetic and they want to contribute with a renewed vigor.
From a larger perspective, this is a very tough period particularly for those at the bottom of the pyramid, who constitute 37 percent of our industrial workforce. It has also made it very difficult for the MSMEs but we have to face the reality and roll with the challenges.
Rajesh Doraiswamy (RD): Questions around when and how this is going to end are playing in everyone’s mind, across the world. This unprecedented crisis has impacted not only industries but also every individual. This is one of the most complicated periods of our lifetime, which definitely needs extraordinary courage for everyone to come out of this.
Which parts of business and economy are the hardest hit? Is it the employee morale? Or the market demand?
GM: The hardest hit are people at the lowest strata, especially the migrant workforce many of whom have gone back. They don’t know when they are going to come back and what’s going to happen to their work.
Factory owners are also hard hit. Entrepreneurs give everything to business, many of whom are wondering whether they will survive.
RD: Our manufacturing sector contributes around 16 percent to the GDP. It generates 12 to 15 percent of direct employment. More than that, every job created by the manufacturing sector creates an additional two or more jobs in the services sector, for example, in the trade and construction sectors. What it means is that manufacturing is the second largest employment provider after agriculture. If we as a country have to lift our people out of poverty, improve living standards, this can only be achieved if the manufacturing sector thrives.
The biggest impact immediately will be on the cash flows. If this COVID-19 situation is left unmitigated, many in the industry will look at putting a cap on capex for a year, which will impact the revenue of many in the SME and MSME segments. That in turn can lead to a recruitment freeze and short-term retrenchments. Disposable income will tend to decrease, salary cuts may happen, which will bring down consumption. Low spending will lead to a slowdown of the economy.
What are the measures you are taking to cope up, or what are the things that industry can do better to deal with the situation?
RD: Taking an optimistic view, in any crisis, there is an opportunity. The bigger the crisis, the bigger the opportunity. India is well placed for this opportunity, when we come out of this. Government support will lead the way for transformation of the economy. The government and RBI have already announced certain measures.
In my opinion, a couple of things that can certainly work are, one, we should look at an interest waiver of three or four months — this should be automatic with no ambiguity. Two, the government has already announced a good move around the payment of EPF contributions for the next three months. It should be open to all businesses who have more than 100 employees.
Another bold move could be a reduction in income tax to a single slab of 10 percent for FY 2020 and 2021. This can put cash in the hands of the industry as cash flow has become a major issue.
In the longer term, bolder reforms are required in the areas of labour and infrastructure.
In the short run, we all have to survive and it is important that we as an industry do not panic. Secondly, conserve cash. This is a time for planning and finetuning of business processes. identify and eliminate the weak links. We should be ready for a growth phase in the medium term where there is going to be recovery. Finally my take is that, understanding your customer needs, the ability and the agility to respond to unexpected situations like this are the key ingredients for any company to survive and grow.
GM: Some of the biggest challenges are the cash flow and cost. We all need to find a way in the short run to make our fixed costs variable. You have corporate overheads which will be around whether you run your operations or not. There are many questions that will come up. Do you merge plants? How do you save jobs? One of the ways of saving jobs could be that a larger portion of the people take wage cuts, starting from the top, and therefore try to save as many jobs as one can. Can the government do something to take on this cost during the time plants are not operating? A reduction of manpower will automatically happen when you are resetting to the new demand situation, even in the medium term. These times could pose the biggest challenge ever to the Indian economy.
Some positives could be that people will become very efficient, they are going to innovate and think out-of-the-box. There will be a lot of low-cost automation. A lot of ideas could emerge that could provide big gains.
As far as governments globally are concerned, it seems that they are able to do a lot, perhaps because they have bigger balance sheets. Countries like France, Spain, the UK and Ireland are paying 70-80 percent of salary allowances to employees of businesses. They are able to make sure that money reaches the hands of the people. This sustains demand and, as importantly, livelihoods.
One of the ideas our government can implement could be around ESI (Employees State Insurance). All the people who get a salary below Rs 21,000 are registered with ESI. I am told that more than four crore formal sector employees are registered with ESIC. And the net revenue income is about Rs 9,000 crore. Even sharing a part of that revenue with people registered with ESIC can bring a big relief to people in these tough times.
It is important to keep up everybody’s morale. We have to believe in ourselves. That we will fight back and emerge much stronger from this crisis.
Do you feel that India’s manufacturing has been hit harder because of its deeper vulnerabilities such as dependence on few sectors like automotive? What are its big vulnerabilities?
RD: Every sector is hit due to this covid crisis; even those companies that mostly export, or those with higher automation or those who have a lower dependency on supply chain. That said, the manufacturing sector was facing a slowdown pre-Covid due to a lot of uncertainty in the economic environment. Now this crisis has dealt a double whammy to the sector. There are certain aspects that have been lacking in the manufacturing sector. One of them is workers’ productivity. On an average it is almost 4 to 5 times lower than that for China, Indonesia, Thailand, and Vietnam, etc. Quality systems and processes, maintenance, talent management including skill upgradation are some of areas where even large companies [in India] have not really done very well compared to global standards.
GM: One thing that needs to be done is, can we derisk our businesses by going into areas that have not been as deeply explored? One such area would definitely be aerospace.
In aerospace, India has more people employed on the service side than the manufacturing side. We are not manufacturing enough for aerospace. This sector demands high quality components, world class product development processes, technologies, etc . Today, India’s share of exports in this sector is 2.1 percent of the global output. We need to set a 10 percent target. We shouldn’t be happy saying that we can grow 10 or 20 percent every year. We need to aim for an exponential growth rate. Look at the China story and see how they took 14 percent of the world aerospace market. Can we set a 10-year agenda to reach a 10-percent share?
It is very much possible. For example, we [at Maini Precision] make aerospace components which are about 8 to 12 years ahead of the Indian market. I feel that we lack the speed and the scale as an industry, and that goes back to infrastructure, policy, etc. I understand that the government is interacting with all the industry houses to figure out the best things to do.
We must diversify. We have to understand that demand is going to be low in the automotive sector for the near future. A simple example is EVs (Electric Vehicles). They require a lesser number of parts. We as an industry should look at what we should do to get a larger share of any growing market.
What are the top things to be done during the crisis so we emerge stronger on the other side?
GM: First, there needs to be a realization that we are going to emerge in a different world, a new normal. For one, it has taught all of us the utility of work for home. We have a lot of our engineers connected to our system, designing from home, which we never did before. It was not that the technology was not available before. But this crisis enabled the shift.
The whole infrastructure around the whole corporate office structure will change. Business travel will take a long time to recover. Only the machine and operators are not going to change much, except that one will have to find ways to operate more machines with fewer operators, since the crisis has limited the number of people who can come in.
RD: There has to be a better degree of certainty in policy making. That has been lacking in the country for quite some time, at least for the last 10-12 years. There needs to be a clearcut, unambiguous policy direction from the decision makers.
There have been a lot of efforts around Make in India, but I haven’t seen any concrete policy initiative to support manufacturing or to help the sector face its challenges.
What would be a better way for the policy makers to make it happen?
RD: They have to understand the difficulties of each sector.
Each sector faces its own challenge. They have to understand first what are the unique difficulties faced by the auto sector or mining, electrical machinery, textile or F&B. There are a lot of ways to get the right data.
How can the industry bodies play a role in this?
RD: Industry bodies are doing their part. Despite that we see a lot of contraindications in [the government’s] policy making.
GM: We as an industry need to have a global vision. We need to focus on building a great infrastructure, move up the ease of business index, make life a little bit easier for business owners. A lot of people have cases running for 20 years. The [court] appeals have to go 3-4 times right up to the Supreme Court. There are a lot of time consuming and cost-added activities that happen. We need to focus on value-added activities, spend time and resources creating value.
Audience Question: It appears that the MSMEs don’t have a proper representation with the government. Why is that so?
RD: To the contrary, the govt is doing a lot for the MSMEs. A lot of policy decisions during this crisis has been done for the MSME sector. I would say that there is a lack of representation for the large and medium corporates.
Ravikumar Shirige, Carl Zeiss India (Audience): We have been talking about the quality of manufacturing in this discussion. In the same context, if we look at the public sector, the idea is that quality machines can be procured at L1, which is a practice we have inherited from the British. What is your view?
RD: You are right. I think in case of public sector tenders, the quality is determined by L1, therefore it becomes the mindset that L1 is the quality that must be produced. The focus is on low cost, and not so much on the specifications and the quality of the product. But that [procurement] mindset does not exist in the private sector. Here companies go with quality, delivery commitment, supply chain efficiencies and similar other aspects. Large OEMs, for example, look at these aspects first before looking at the price. That said, the price has to be competitive.
GM: The most important parameter for purchasing decisions has to be quality. That comes first and the rest follow. Govt companies need to have a way to factor in quality into their decisions, not Just price.
Audience Question: There is an anti-China sentiment globally right now. In that regard, what will it take for the Indian industry to get some market share in [global] manufacturing?
RD: I am sure that we will definitely see a lot of new opportunities not seen before. Global companies are seeking to diversify production sources to be used beyond China. It started earlier during the trade war. India is definitely among the best placed countries with a massive educated working population. Industries that can take advantage of this include electrical, machinery, packaged F&B, pharma, and in the longer term, textile and apparel. These are some of the industries where India can become a global supplier.
GM: That opportunity has already started coming in. It’s up to us now as to how to really be proactive and avail of these opportunities. There is a lot of business out there. Today, companies will not have the same top line that they used to have pre-Covid. It means that the only way a company will strengthen its bottom line will be to have a better cost. Most of the large companies procure between 40 to 70 percent of their products from a global supply chain. Therefore we can be really competitive and make the best of this huge opportunity. We should go out and get it.
I don’t think China is competitive in every sense of the word. China is extremely competitive when it comes to very very high volume. It’s not necessary that they will be competitive when it is medium to high, that is to say, a range of 1,00,000. When you go to the 5 million to 10 million range they are very competitive because of the infrastructure. In many areas we are more competitive. We should select areas where we are strong. There are many, many of them.
Not all businesses are high-volume games. We can target medium and low volume businesses.
RD: I agree. When it comes to high volumes, China is cheaper. I think it’s not because of the ecosystem that they have developed. As Gautam said, if you go to lower or medium volume [products], my personal experience is that we are competing well on quality and price with Chinese manufacturers in most of the markets.
We have to focus on better and more friendly policy measures to attract some of these companies to India.
At the same time, we really can’t write off China, because they are capable of bouncing back and being successful. Public memory is short, so a couple of years down the line, when things become normal, the market will go back to the same old principle of best-cost producers. About who is more efficient, who is providing a better quality product in faster time. Who can be more nimble, make a new product and do a faster time-to-market.
But there is certainly a gap that is open to India right now. We are capable, we are fast and if we can adapt, quickly align with the global best practices, I think we have a good chance of, say, taking a 10 percent or more share of the global market.
Audience Question: The issue of low average productivity was discussed here before. Can automation solve that problem, given the fact that it is highly expensive?
GM: I could answer that with one term: low-cost automation. That’s the combination we need. I agree with you that complete automation is very expensive. I am talking from the perspective of MSMEs and SMEs, not from that of an MNC based in India, that would have a different parameter. If today I switch to robotics to do everything, and it may cost me, say, Rs 10 lakh, how can I do a similar thing or at least 80 percent of that with a lower investment? If for example, I make machine tools, how can one man run five machines with the help of a simple low cost automation solution, where the loading and unloading is done not with the robots but with the simple combination of pneumatics and holders to bring the cost done. How many spindles can I run with the least amount of investment in automation? Depending on your manpower cost and cycle time, you can decide on your return on investment on that type of automation. In other words, multi-manning with low-cost automation could be a general low-cost automation solution for the SMEs and the MSMEs.
RD: The right kind of automation [for the Indian industry] is something that gives support to a worker to do it more efficiently, which can bring up productivity. Industrial engineers must study each industry to see how efficient the workers are, and if you can implement some low-cost automation in that area, how can the productivity be improved. That will also reduce your cost for capital.
Audience Question: What is the strategy during the COVID period of manufacturers for meeting the demands for multiple varieties of production, given that there is a lack of workforce and the social distancing norms in place?
RD: It depends from industry to industry based on how dependent it is on migrant workers. To the industry stakeholders hit by this, they will have to do a reset, find new ways of working on how the social distancing can be maintained for one to two years. The industry will have to adapt to this type of working culture. Getting back the demand will be a major issue and that’s the problem that needs to be solved.
GM: In our experience, we opened up one of our units which does aerospace manufacturing. We found that only 10 percent of the manpower showed up during the first week. I do agree that bringing manpower back into production will be an issue in the short run.
Looking at the lockdown situation for the long term, we have implemented social distancing norms as part of onsite work. For instance, we send a 40-seater bus wherein only 15 people must travel. Similar norms have been put in place at the entrance of the factory, the spaces between machines, and in our canteen where we have 8-seaters with a maximum of 2 people seated on them diagonally. We found ways and means to maintain social distancing.
To answer your question about the demand, we will find ways to meet the demand, but getting demand back on track post-lockdown is the biggest worry.
What is your message to the viewers regarding how this crisis can be met?
RD: From a longer-term perspective, my recommendation to every organization that you have to build a contingency reserve to overcome uncertainty, because the future is going to be uncertain in a lot of ways.
That said, understand your customer. Be fast in responding to unexpected scenarios, which means that you become more agile and nimble.
GM: Have a clear 90-day and 180-day plan. Remember cash is king. Conserve cash. Pay more attention to ROC (Return On Capital). Make sure our businesses are more sustainable.
Seventeen Samurai: Profiles
Gautam Maini, MD, Maini Precision Products Ltd
Maini Precision is a diversified manufacturer and supplier of high precision components and assemblies, catering to a global clientele in the automotive & industrial and aerospace sectors.
Key products manufactured by the company for the automotive & industrial sectors include precision components, machined castings & forgings, fuel filters and sub-assemblies used in engines, transmissions, fuel injection, turbo chargers, steering & chassis, for passenger commercial vehicles and precision components, machined castings and forgings for other industries; and for the aerospace sector include precision components and sub-assemblies used in aero structures, aero engines and aircraft systems.
Rajesh Doraiswamy, Joint MD, Salzer Electronics Ltd
Salzer Electronics is at the forefront of the technological advancements in the field of Switchgear products. Salzer has been designing and manufacturing high quality Electrical Relays, Energy Saving Device, Basic Cable Channels, since 1985. Committed to innovation and excellence, Salzer has now earned a reputation for its quality-oriented electrical and electronic products, worldwide. Salzer has entered into a marketing alliance with Larsen & Toubro Limited for marketing its product range within India. The export market of Salzer is looked after by a similar tie-up with Crompton Greaves Limited which is another industrial giant in the switchgear field.