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How do we keep paying wages, wonders stricken industry

Severe cash flow issues making it tough to follow govt directive to pay workers; more lockdown will worsen it.

ET Bureau|
Last Updated: Apr 02, 2020, 09.01 AM IST
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ET spoke to industry captains, entrepreneurs, MSME owners and business associations for this story. Some spoke off record.
NEW DELHI | GURGAON | MUMBAI | BENGALURU | KOLKATA | PUNE | CHANDIGARH: Industries, big and small, are increasingly finding it difficult and, in some cases, impossible to comply with the government’s directive that workers’ wages must continue to be paid through the unfolding economic crisis. The reason: Falling or zero revenues that aren’t compensated by measures such as loan forbearance.

We need much more government help, is industry’s consistent message. The labour ministry plans to increase unemployment benefits through Employees State Insurance scheme may not be enough given the scale of the problem, industry observers said.

And industry is also asking whether government directions have any legal backing. The Disaster Management Act, for example, doesn’t provide for a legal basis on continued payment of wages.

Adding to this is labour absenteeism, which is a perverse outcome of the government’s directive that workers must be paid even if they don’t turn up for work. In some product categories, labour shortage may soon create supply shortages.

ET spoke to industry captains, entrepreneurs, MSME owners and business associations for this story. Some spoke off record.

‘Need Govt help for welfare obligations’
Most employers agree with the government that wage earners should not be made victims in this crisis. But they are asking whether their cash flows can get extra official help to fulfil welfare obligations.

Deepak Sood, secretary general of Assocham, said “pressure is mounting on working capital” and industry expects “banks to stretch their helping hand beyond RBI forbearances” and a “large fiscal package”. CII president Vikram Kirloskar said in a statement that “it is critically important that we do not resort to retrenchment” but that costs were a concern.

The smaller industries, facing more cash flow problems, are more direct in their response. S Singla, who runs a plastic tanks manufacturing unit in Baddi, Himachal Pradesh, was categorical: “The government can say anything. Will they pay the salaries? I will have to fire 20% of my workforce… We work on thin margins.”

MSMEs and SMEs are in a really tough spot. Chandrakant Salunkhe, founder of SME Chamber of India, said: “I fear that after two months, 500,000-700,000 MSMEs will close down… we need much more government help.” He added that most small units will be able to pay salaries for at most a month.

Smaller ecommerce players are in almost a similar position. Vendors that sell ‘inessential’ items and are therefore hit hard say they can pay wages at most till the lockdown lasts. Raja Agarwal, who sells imitation jewellery on Flipkart and Amazon, said, “I’ve decided to pay my employees full salary for April. However, I will start to struggle if the lockdown extends.”

Restaurateurs struggling
Restaurateurs are willing to pay salaries for a month, but working capital difficulties mean they can’t extend it without direct government support. Karan Tanna of Ghost Kitchens, a cloud kitchen platform, said: “Everyone intends to pay staff salaries... but lack of rental waiver from landlords and negligible government support means we can’t carry on.”

In some cases, even the promise of wages and benefits are not getting workers to attend because of the expectation that full wages will be paid even without showing up for work.

“We have committed extra incentives… yet workers are not willing to report for work because they are shielded by government directives,” said a top official at one of India’s largest foods companies. A large retailer said half his workforce is not turning up.

A leading biscuits manufacturer based in the East said worker absenteeism has led to zero production in the past 10 days. The business head of a large FMCG company said: “The government order on paying full wages during the lockdown means workers are staying home.”

The executive of a leading FMCG firm said the company was evaluating legally whether the government's notice to pay full wages to labour during the lockdown was an order or a request.

Demand destruction
For large employers facing demand destruction, the problem of paying wages is severe. Textiles, the industry that’s India’s third largest employer, is in a quandary on how to keep paying salaries. J Suresh, MD of Arvind Fashions, said: “Our revenues are now zero. We can support workers for some time, but if this lockdown extends, it’ll get very hard… we’re hoping for government subsidies for paying front line staff.”

J Thulasidharan, president of the Indian Cotton Federation, was even more pessimistic: “About 95% of the industries will not be able to pay 100% wages for the lockdown period. We do not have the liquidity, having lost the peak season… as per the Industrial Disputes Act, we are bound to pay 50% of the salary to workers for the layoff period caused due to some calamity. If we get some financial support from banks or the government, some mills might be able to pay the remaining salaries later.”

Satish Koshti, who represents the powerloom industry of Ichalkaranji in Maharashtra, said, “Most of us have made arrangements for workers by paying them enough money to get food and other essentials. Paying full wages will be each mill owner’s decision.”

Manufacturing’s constraints
Manufacturing, another large employer, is also coming up against a cash flow constraint. Rishi Bagla, promoter of a medium-sized engineering group based in Maharashtra, said: “Workers have to be paid salaries at a time companies have no revenues for a month. Nobody can compensate for this loss. The government has to ask banks to step in.”

Former president of All India Rice Exporters Association Vijay Sethia also stressed the need for government help — waiver of electricity charges and interest subvention by banks. This is echoed by Ajay Bansal, president of All India Petroleum Dealers Association, who wanted tax relief or power subsidies to help dealers pay wages at a time when pump sales have “dropped 90%”.

(Writankar Mukherjee, Ratna Bhushan, Rahul Tripathi, Alnoor Peermohamed, Aditi Shrivastava, Sanjeev Choudhary, Jayashree Bhosale, Prashant Krar and Madhvi Sally contributed to this story.)
(Catch all the Business News, Breaking News Events and Latest News Updates on The Economic Times.)
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