Chemical Industry Digest interviewed Mudit Jain, Managing Director of DCW Ltd, a major manufacturer of industrially important inorganic chemicals, to know his views on the impact of COVID-19 crisis on the chemical and allied industries.
His views on the crisis and some very radical recommendations he makes, to overhaul the entire Indian economy, so that India can become a leading economic power are published here.
Transcripts from the interview:
Chemical industry Digest (CID): What is the impact of the COVID-19 crisis on industry particularly the industry that you are in?
Mudit Jain (MJ): This crisis has been back breaking for all industries and many companies and industries may get totally demolished too, unless remedial measures are taken quickly. At the moment, there is total chaos in industry. There is huge demand destruction, across the board, for all industries. Companies, even in locked down situation, have to meet fixed costs like loan repayments, interest costs, salaries and other overheads. And there is no cash flow coming in. Industries have no money to pay and obviously, there will be salary cuts and retrenchments. I am really worried over the situation as there will be massive unemployment. Those who were earning daily wages whether in industry, trade, construction, auto/ taxi services etc. are in dire straits. I am afraid there will be social unrest and even violence if immediate succour is not made available to the severely distressed class.
CID: How is your company faring?
MJ: We are also adversely impacted, though we are a little lucky, as it is a little less comparatively, mainly because we could keep our plants working, both in Gujarat and in Tuticorin in Tamil Nadu. Though domestic demand is negligible we have been able to manage due to exports, particularly since our plant in Tuticorin is close to the port. In Gujarat our soda ash plant caters to the domestic demand there, while our plant in Tuticorin which produces caustic chlorine products has been mainly catering to exports. Some amount of sodium hypochlorite is also produced which is a good disinfectant, and particularly important now, for disinfection against the coronavirus. We are also shipping caustic soda to Nalco in India. So overall we are less affected.
CID: To what extent is the lockdown affecting the business and what is your opinion on lengthening the lockdown?
MJ: Very frankly, I am against the lockdown. This has only led to crippling the industry and business with demand destruction. As Rajiv Bajaj of Bajaj Auto said, lockdown is a solution looking for a problem. Lockdown should not have been imposed at all. Instead all things should have been kept open and running, while at the same time putting in place stringent protocols for movement of people, on social distancing, on transportation and travelling, on meetings and assembly of people, on the working of offices and industries etc. And the vulnerable sections of the population like the elderly and those with co-morbidities protected. This would have ensured that the challenges on the health front against the virus was taken care of with minimal damage to business & industry. But now with the lockdown gone on for more than 50 days, there is no sight of flattening the curve with cases of infection spiking every day, while at the same time it has played havoc with the economic situation for everybody, for individuals, for business & industry and even for the government, as government revenues have also been hit hard.
India is a densely populated country with our urban areas swamped with slums, where physical distancing, etc. is very difficult. The sudden announcement of the lockdown has created huge problems for migrant labour and daily wage earners whose main concern is not the threat of corona virus but their day to day livelihood without which they would die of hunger. Their problems have been aggravated by the lockdown. The migrants leaving in huge numbers will also create problems for the resumption of business and industry in the respective states.
CID: As an industry and through industry associations and bodies what recommendations have been made to the government on mitigating the economic crisis and what has been the response of the government?
MJ: We are members of different associations which include Alkali Manufacturers Association, Indian Chemical Council, and also of FICCI, which is the apex body with substantial clout. All these associations have made many recommendations to the government; such as not to impose import duties on raw materials, so that we can get raw materials at international prices; to allow a 2 year moratorium on all repayments including GST deferment etc. Today import prices have crashed and we are holding earlier inventory also which adds to the cost. We have been suggesting all these even before the crisis hit us so that domestic manufacturing could be strengthened and we could become globally competitive. Many chemicals that we can easily manufacture here are being imported as they are far cheaper than what would have been the cost to manufacture locally. It is expected according to a recent report that import of chemicals will touch $130 b by 2021, which is unsustainable for our economy. Let me give you one example, that of PVC. The domestic demand is about 3 mtpa, whereas the domestic production from all 5 manufacturers put together is only 1.5 mtpa. Despite the domestic demand, no manufacturer in India wants to expand PVC production or set up greenfield projects.
Somehow, I am not very hopeful government appreciates industry’s point of view from my past experience. Even in this crisis there isn’t any financial support from the government for industry. The old ways of government working, bureaucratic delays, approvals taking time, high taxes are all continuing.
CID: What steps can the industry take independent of government support?
MJ: Whatever steps we need to do as an industry we have been taking. About 20 years back itself we converted to the membrane process to improve energy efficiencies, increase productivity etc. Since we are a power intensive industry and power supplied by govt. electricity boards are costly, we decided to put up captive power plants. For this, at the time we requested for soft loans from the government, which was also not given.
CID: Do you see any silver lining from the crisis? There are reports that because of this crisis the entire world is not happy with China and therefore India has the opportunity to attract fresh investments and MNCs planning to relocate from China. What is your take on this?
MJ: The only silver lining I can see is that all industries are in the same boat.
I have my doubts whether companies will relocate to India from China. Of course, due to the Covid crisis there is a huge outcry to ban companies from China or not to buy products from China. I feel these are all kneejerk reactions. Why ban or restrict any company from anywhere coming to India? Whoever is willing should be allowed to come to India and set shop here. Let Indian companies compete with them. If foreign companies do anything wrong here we have laws to tackle that. Companies will come to India only when there is an enabling ecosystem for manufacturing in India. Infact, Indian companies instead of expanding or putting up projects here are setting up projects overseas. Some are even scaling down their operations here, setting up manufacturing overseas and importing those products into India. We should ponder why this is happening
CID: If you have to suggest few steps in the order of priority that the government has to take to combat the economic meltdown that is taking place due to the crisis, what would these be?
MJ: As you know the pandemic is unprecedented which has caught the world unawares and brought on an economic catastrophe of titanic proportions not seen since the great depression that started in the USA in 1929.
So we need radical and revolutionary steps to tackle this situation; incrementally addressing the economic crisis will not help much.
In fact, we should consider this crisis as an opportunity to totally revamp our economic policy, course correct and create a very enabling economic ecosystem for business & industry to flourish in India.
With this in mind, I am recommending some important steps that ought to be taken – and which can be debated – which I strongly feel, if implemented will make India an economic giant with a 100% increase in our per capital income.
- Formation Of A Body on the lines of MITI In JAPAN
Japan after it was devastated in the Second World War, created the Ministry of International Trade & Industry (MITI) to cooperate with business & industry for it to grow. The results have been spectacular with Japan pioneering the Total Quality Movement (TQM) for excellent manufacturing techniques and becoming a world power with the automobile industry in the 1970’s and electronics in the 1980’s. India can learn a lesson from Japan and set up a similar type of body under headed by the Prime Minister and comprising of experts from various fields who will will recommend and create the policies to be implemented. Such MITI type bodies should be formed in all possible areas for industry, agriculture, healthcare, education, sports and so on. Such bodies will provide tremendous growth impetus for all these areas.
- Abolishment of All Indirect and Direct Taxes
The government need not give any stimulus instead abolishing all taxes will be the biggest and best stimulus the government can provide to its people in these financially crippling times. All indirect taxes like GST and other levies and cesses, capital gains tax, STT and CTT in the stock market and direct taxes like income tax and company taxes should be abolished. Other economic packages announced will not be of much help and will not be necessary.
In this way, money will be in the hands of the public and the velocity of circulation of money will be much faster leading to greater consumption than if the government spent the money.
It is like building many check damns rather than one gigantic dam which requires much less capex and maintenance costs and is also more doable and better for the economy.
The government can still meet its expenses by drastically slashing its expenses across the board by a detailed TQM system of implementation as being done in leading corporates. In addition, the government can rely on the receipts of its public sector undertakings which are many and very big and also charge nominal fees for various services rendered such as toll tax on highways, visa fees etc.
- Print Money and Utilize in Developing Infrastructure
In these extra ordinary times, the government should throw the rule book away and focus on what needs to be done. As management experts have said it is more important to do the right thing than doing things right. The money so printed should be only utilised for infrastructure creation for roads, ports, airports, sewage plants, desalination plants etc. This will not lead to any inflation. Much needed huge and essential infrastructure will be created which the private sector cannot do with its limited resources.
- Special Emphasis on Export Promotion
It will take a long time for the Indian economy to limp back to normalcy and there will be a chicken and egg situation on whether to produce if there is no demand and how to create demand in the first place. The world is a huge market but India having less than 2% market share with services occupying the major proportion. To encourage exports and even local production, industry can become competitive if inputs supplied to it by government companies are in line with international prices. For example, state electricity boards can easily reduce their tariffs by 20% by becoming more efficient. A report mentioned that there is over 40% power loss and theft from generation to transmission. Oil companies should have import parity pricing for furnace oil as per policy laid down in the 1990’s, but not being followed. Interest rates by public sector banks should be reduced to 5% for both working capital and term loans and for exports to 1%. In addition, export incentives like MEIS should be hiked to 10% for Indian companies to be competitive in the international markets. All these measures can make Indian industry competitive and increase production.
In the last 20 years, many Indian companies have invested overseas as the costs and business climate in other geographies have been better and also many companies have closed down in India due to cheaper imports for no fault of theirs. For example, the freight costs from China to South India is approximately Re.4000 per ton whereas from South India to Delhi is Rs. 6500 per ton, all due to high taxes on petroleum products.
- Approvals from Regulatory Authorities to be outsourced to Professional Agencies
Any regulatory approvals from various bodies either at the central or state level should be outsourced to expert agencies and the government should only collate and collect a nominal fee for giving it authenticity. For example, approvals from the factories inspectorate can be outsourced to chambers of commerce or engineering standards companies; labour matters to HRD firms and trade unions etc. This will be a totally new way of doing business, as it will eliminate state and central government interference and make them mainly collators of information. This will also professionalise the mechanism of working and enable the governments to sharply reduce their costs in governing this activity.
- Encourage Employment by Companies
Another revolutionary proposal is for the government to incentivise firms employing more people. For example if a company employees 100 people, it should be entitled to cash incentives and a fast track approval system. Unemployment is going to sharply increase in this new world with emphasis on digitization, physical distancing, robotics, artificial intelligence etc. By encouraging employment it will curb social unrest and bring peace to civil society by developing the potential of people who would otherwise be idle.
I feel the above recommendations, if implemented will be transformational for India, which of course will need good leadership and good governance from central as well as state governments. As you know many Indians have been heading global corporations like Google, Microsoft, IBM, Adobe Inc etc. It is high time we created such global giants from India.
