What Propelled the Manufacturing Sector Forward This Year and What Lies Ahead

The article explores how the year 2021 has been for the manufacturing sector and what lies ahead
What Propelled the Manufacturing Sector Forward This Year and What Lies Ahead

The manufacturing sector’s trajectory for 2021 has been decided by two main factors: pent-up demand and increase in manufacturing costs. The growth that had slowed down tremendously since 2020 gradually picked up pace as pent-up demand boosted the sales. 

Particularly, in certain segments like mobile and consumer electronics, the industry showed tremendous growth. 

Nilesh Mali, Founder of the leading manufacturer of mobile electronics and accessories products KDM India says, “With the pandemic hitting businesses hard, KDM’s sale in the initial months went down but later saw a phenomenal increase in demand as people started using headphones to study, watch videos and exercise, enjoy home cinema, and work with video calls.”

The company has reported Rs. 20 crore revenue during the financial year 2020-21 and is expected to report Rs. 40 crore revenue during the current year.

In fact, according to data, there was a 39 percent rise in the average time spent by an Indian user on a smartphone.

As per a report by App Annie, India stood third (4.6 hours a day) on the list of average time spent by an average user on smartphones, with Indonesia (5.2 hours a day) and Brazil (4.8 hours a day) taking the top two spots worldwide.

The importance of this year’s festive season cannot be unstated enough in helping manufacturing companies to be back on track. Specifically, industrial production expanded 11.9 percent in August from a year earlier whereas output at infrastructure industries, which makes up 40 percent of the industry production index, expanded 11.6 percent in August, according to a report. 

Kapil Kohli, President – Retail, Usha International states, “This festive season, given the ebb in Covid-19 infections, we have observed a healthy surge in demand and our retail sales have surpassed pre-Covid levels. The economy has also done extremely well, and this has made the growth more evenly distributed. The festive season - which contributes a major chunk to our yearly sales, offered us an opportunity to enhance our consumer connection further, therefore, driving the business growth. This year, during the festive season, Usha retail has clocked a good double-digit growth.” 

Similar observations are seen in other sub-sectors like home appliances, consumer durables, and kitchenware, etc. 

Increased Manufacturing Costs
If the pent-up demand has been instrumental in bringing the manufacturing segment back on track, the increased costs have been put boulders along the way. High cost of raw materials, uncertainty of demand, shortage of working capital and skilled labor, high logistics costs and so on are the main challenges to the manufacturing companies. 

In fact, at least 61 percent of companies have reported higher production costs in the second quarter of 2021-22 (July-September 2021-22), according to a survey by FICCI.

Moreover, the cost of production as a percentage of sales for manufacturers in the survey has risen for 80 percent of respondents in Q1 2021-22. Consequently, the impact has been expectedly severe. 

“The cost inflation has certainly impacted the manufacturing front on a massive scale. However, to alleviate its repercussions we’ve set apart product combinations that would be beneficial for the practicality and are economical for the Indian household. Through offers, sales and discounts we made excellent cookware accessible to consumers without compromising on the quality of our products,” says Sunil Agarwal, Director, Vinod Cookware. 

However, despite the cost challenges, several manufacturing companies have done well as they set up right strategies to counteract those challenges.  

“There were headwinds from continuous cost increases in raw materials, freight, etc. The companies that did well were the ones that planned well, and that kept good control over costs. Employee motivation became even more important, given the pressures of working from home and hybrid working," says Nirupam Sahay, ED and CEO, Lighting and Consumer Durables, Surya Roshni. 

Likewise, home appliances manufacturer Candes, though compared to 2020 has grown as much as over 300 percent, has been bearing the additional costs due to the increase in costs.

“Covid-19 definitely ramped up the costing, but we made sure that this costing won’t be going from the customer’s pocket as the company was bearing all additional costs at that time. However, as the situation is improving, the company can see costs coming back to the same as earlier before the pandemic,” Vipin Agarwal, Co-Founder, Candes added. 

Will 2022 Be Any Different?
The next year 2022 is likely going to be a progression of this year's with a little ease on the cost pressure, experts believe. This will be aided by the government's support to build a healthy environment for the growth of the manufacturing sector in the country. Like the government's approval of a PLI scheme for 16 plants for key starting materials (KSMs)/drug intermediates and active pharmaceutical ingredients (APIs). 

The manufacturing GVA at current prices was estimated at $ 97.41 billion in the first quarter of FY22, according to IBEF. If the various challenges the industry is facing are sorted, many experts say India in fact has the potential to become a global manufacturing hub and by 2030, it can add more than $ 500 billion annually to the global economy.

Gunjan Shah, MD and CEO of one of the largest footwear and fashion accessory manufacturers Bata India said, “Continuing with agility and resilience at the core of our business, Bata India remains optimistic as we move into 2022. Sales through our digitally-enabled channels have grown 3x times, and even in the coming year, we will continue ramping up our digital initiatives." 

"Additionally, the year 2022 will see retailers expanding their presence in smaller towns via distribution expansion and franchise networks as they move ahead with their post-Covid recovery. We, at Bata India will also continue to expand our franchise stores & distribution into multi-brand outlets to over 1500 towns in the next couple of years,” Shah further stated. 

"I am optimistic about 2022. The Lighting industry is likely to be back to normal growth, and the Consumer Durables industry, particularly Home Appliances are likely to see strong double-digit growth. There is pent-up demand in the market, and with a lot of people likely to continue working from home or working in a hybrid scenario, the demand for Appliances that make life easier is likely to be high. The cost increase pressure felt in 2021 is likely to ease a little," Sahay of Surya Roshni concluded. 

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