The Hindu : Karnataka / Bangalore News : Bangalore’s industries tighten their belt

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Wednesday, Nov 19, 2008
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Karnataka

Karnataka - Bangalore

Bangalore’s industries tighten their belt

V. Sridhar

The deep recession is preparing to hit every sector and every kind of economic activity, including IT

Companies have reduced their staff or have refrained from hiring more
Turnover of capital goods industry has declined by over 50 per cent

Bangalore: The fog of an industrial recession is beginning to envelop the city’s economy.

And, it is affecting every aspect of working life in Bangalore. Industry captains, who until recently sold the notion of the Indian “growth story” as an unending saga, are now beginning to sing a different tune.

Bangalore’s IT industry was supposed to be immune to happenings in the real world. Now it is evident that the IT industry is well and truly slowing down. Companies have reduced their staff or have refrained from hiring more.

Those remaining face lower increments and measures that affect the lifestyle they have been used to.

But, by all accounts, this slowdown is not about this or that segment or type of industry. It is evident that this deep recession is going to affect every sector and every kind of economic activity. Size offers no security in these troubled times. Large manufacturers are hit, but small industries are even worse off. Exporters, reeling under a demand slump in overseas markets, are hit as are manufacturers who cater to the home market.

Demand slump

D. Muralidhar, president, Federation of Karnataka Chambers of Commerce and Industry (FKCCI), says “informal feedback” from members suggests that “business turnover in the second half of the current year is likely to fall by 20 to 25 per cent.”

He hastens to add that FKCCI members’ assessment is “somewhat mixed” as of now. Some exporters have orders till the end of the year, after which they have blank order books. Others are worse off because payments by importers in Europe and the U.S. have been deferred. “Those who relied on exports more appear to have taken a stronger beating,” says Mr. Muralidhar.

The automobile industry, which is in a deep crisis, has affected the several auto component units located in and near the city. Ancillary units — and their ancillaries — are in a deep crisis. Orders from overseas manufacturers have either been cancelled or deferred.

Inventories are piling up and these suppliers are paying heavily for this. Mr. Muralidhar, who owns a unit which supplies ferroalloys to markets in 35 countries, says he has inventories which were worth Rs. 10 crore a few weeks ago.

“With prices crashing, they would be worth merely Rs. 7 crore now,” he says. He reckons that his market has fallen “at least 15 to 20 per cent” in the last two months. With prices falling in the international market, it is “but natural that importers will try and renegotiate contracts,” he remarks.

The capital goods industry, which even during better times struggled to cope with the flood of cheap imports, is now in dire straits.

Mr. Muralidhar says the turnover in this segment has declined by over 50 per cent in the last two months. These are the units that manufacture machinery such as lathes and other machinery, which are widely used in all industries.

“This is a demand recession which is very deep,” says Muralidhar.

Palpable gloom

Small units are even more stretched because of their limited staying power. In Peenya industrial estate, home to about 5,000 small scale industrial units, the gloom is palpable.

The slump is so bad that industrial entrepreneurs do not even mention their perennial complaints about the utterly poor infrastructure — the dug up roads, the lack of drainage facilities and the poor street lighting.

“What is the point in talking about a broken light when the house is on fire?” says an entrepreneur. Several units have shut down in the last few weeks and many more appear to be on the brink.

The garment units in the city, now an important source of apparel to overseas markets, are in distress. Several large stores in the U.S., among them Steve and Barry’s, a clothing chain store in the U.S., have collapsed. An industry source said about Rs. 150 crore to Rs. 200 crore worth of orders made to apparel units in the city are “clogged in the pipeline” because the outlets have cancelled orders. These units are now on the road to ruin, he said.

Retrenchment

Although large scale retrenchment of workers has not yet happened sources in industry say that it is only a matter of time before this happens.

Union sources fear the spectre of unemployment will act as a pressure on wages of the industrial workforce.

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