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Facing headwinds, eyeing opportunities

As in so many other countries in the world, turbulent skies lie ahead for India’s economy as a result of the widespread upheaval COVID-19 is leaving in its wake. The business environment in India ahead of the global crisis was already on the shaky side.

The COVID-19 pandemic is continuing to paralyze the economy, and the appliances and electronics industry is finding itself in a precarious position. The industry witnessed a complete loss of sales lost in the three-month period of March–May. AC sales, which usually account for 60–70 percent during the period, went up in smoke. Other heavy appliances, including refrigerators and washing machines, are following suit.

Consumer optimism is declining as the crisis has progressed. As restrictions begin to lift, consumers continue to be worried about personal and family safety. They expect to continue cutting back on spending across most categories, except for some household essentials and at-home entertainment, and plan to shop more online for most categories. Most consumers believe that the impact of COVID-19 on their routines and finances will last for more than two months.

With the partial lifting of the lockdown, manufacturers are struggling to recommence production. Guidelines on social distancing, with additional expense of transport, sanitation, and insurance, are adding to the manufacturing woes. Peculiar challenges arising on the back of COVID are piled up inventory, stocked up retail channel, shortage of labor, increase in component and panel import prices, decreasing value of Indian rupee against the USD dollar, and a volatile supply chain, among many others.

Retailers are opening stores for shorter working hours, and on alternate days in some cities. The retail sector, already on minimal margins, is at a loss on how to meet costs in the face of negligible footfall. On the contrary, the e-commerce sector is seeing a spike in sales even in the heavy appliances category. The disruption has caused retailers to adopt the hyperlocal online-to-offline business model.

The servicing sector is biding its time for the situation to normalize and the COVID curve to flatten soon. It has been one of the hardest-hit industries. With product installations making up 50 percent of the revenue flow for the service provider sector, this course is projected to dwindle radically in the post-COVID world. The extensive lockdown period has resulted in a fearful psychosis of the consumer mass against any outsider.

The rapid technology adoption is ushering innovations in the servicing and repairs industry like video-led remote diagnostics. Some companies are using popular e-communication channels like WhatsApp to provide remote diagnostic techniques to help consumers repair their appliances and electronics products.

Supply disruptions from China, where many manufacturing facilities stood idle for weeks, have caused issues for import-reliant industries like consumer durables and electronic manufacturing. Although Chinese plants are largely up and running, supply chain problems could continue, should a second spike in COVID-19 cases occur. Chinese vendors have raised the prices of a few components by more than 2 percent, which has led the prices of TV panels to jump by more than 15 percent.

The US-China Trade War and the ongoing pandemic crisis are accelerating a shift in global manufacturing out of China. This is further leading the Indian government and India Inc to collectively derive a potential crisis outcome and create ample opportunities for Make in India for tackling the challenges posed by China to the electronics manufacturing landscape.

The Ministry of Electronics and Information Technology (MeitY) recently notified three major schemes to promote electronics industry in India. The three schemes, namely, Production Linked Incentive (PLI) Scheme, Electronics Manufacturing Clusters (EMC) 2.0, and Scheme for Promotion of Manufacturing of Electronics Components and Semiconductors (SPECS) are aimed at boosting the electronics manufacturing in India by further expanding it and increasing domestic value addition.

India is planning to step up its investment pitch to global companies that are likely to de-risk their businesses by setting up alternate supply chains in the coming years. Invest India, which is an investment facilitation joint venture between the Department of Promotion of Industry and Internal Trade (DPIIT) and India Inc, has shortlisted around 1000 global companies to which individual investment pitches will be made.

Most of these global companies have their corporate headquarters in the US, Japan, Germany, Taiwan, France as well as the Middle East, and operate in 10 sectors including electronics systems design and manufacturing. Hence, the disruption of supply lines is being seen as a strong catalyst for these global companies to de-risk their businesses in the coming months and years.

All this means that 2020 results will be poor, with unprecedented revenue and profitability declines more severe than in previous recessions. While a gradual recovery beginning in the second half of calendar 2020 is expected, there will not be a meaningful recovery in credit measures until the back half of calendar 2021 at the earliest for many companies.

Moving forward, as the extent and duration of the economic impact of the COVID-19 pandemic remains uncertain, some relief is expected from the pent-up demand, replacement buying, and servicing backlog. From the manufacturing angle, only time will tell if any of the initiatives as MeitY’s PLI, SPECS, EMC 2.0, government’s quest to woo foreign companies into India from China, or the recently announced Rs 20-trillion economic package will be able to bail out the industry.-TVJ Bureau

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