Coronavirus impact: Auto component industry seeks working capital support, moratorium on interest payment

The $57-billion domestic automotive component industry has sought a relief package from the government that includes measures like support for working capital and a moratorium on payment of interest and principal on loans taken by companies for at least 1 year to tide over the coronavirus crisis.

The 21-day lockdown announced by the government has brought production to a standstill. According to the Automotive Component Manufacturers Association (ACMA), the industry is facing a production loss of Rs 1,000-1,200 crore per day.

"Especially the Tier-2 and Tier-3 suppliers are facing severe hardship on front of cash flow, which if not immediately addressed will lead to insolvency of several companies," it said in a statement. "Further, there is no clarity on how the market will pan out in the ensuing months, thus further eroding the industry's confidence."

The four major relief measures sought by the industry include relaxation of borrowing norms and statutory payments, easing of norms for NPA recognition by extending moratorium on payment of principal and interest by at least 1 year, relaxation in fixed electricity charges and relaxation in levy demurrage charges for at least 7 days for import cargo clearance.

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"With complete stoppage of production in the vehicle industry and scarcity of working capital, the situation in the component manufacturing units, including the tier-2s and tier-3s has become quite acute, threatening their survival," said Deepak Jain, President ACMA. "We have requested the government for helping us with immediate relaxation of borrowing norms and statutory payments, extension of moratorium on payment of principal and interest of loans for a year, among others. We are also seeking support of SIAM and the OEMs to ensure minimal disruption of the supply chain."

While the industry was already under duress due to a protracted slowdown in the domestic automobile industry with vehicle sales slated to decline a record 16 per cent in fiscal 2020, the most in a single year in over two decades, ACMA said the industry was now facing a much bigger challenge of the COVID-19 pandemic, which threatens to destabilise the entire automotive value chain.

"We have issued an advisory to all our members to maintain safety and security of all permanent and contractual employees, ensuring no layoffs and timely salary for the month of March. In fact, over 1 lakh contractual employees have already been paid their salary for this month," it said. "Further, several of the component manufacturers have promised to extend full medical aid to their employees, including contractual, in the eventuality of them or their family members contracting the Novel Coronavirus."

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ACMA has also created a taskforce which is evaluating the possibility of manufacturing facemasks and hand sanitisers. Some of the companies are also evaluating the option to import ventilators by using their CSR funds. The industry has sought guidance from government on the standards and the quantity needed.

The Auto Component Industry contributes 2.3 percent to India's GDP, 25 per cent to the country's manufacturing GDP, and employs over 50 lakh people.