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How Far Will Lockdown Set Back India’s Supply Chain?

In the midst of a lockdown that began Wednesday, the question for India will be how far-reaching the impacts this three-week freeze on almost everything will be for the country’s garment supply chain.

Already, attention had ramped up for sourcing in India as more companies attempted to turn their backs on China before coronavirus was part of the conversation. In a Flexport webinar Wednesday, 52 percent of polled attendees said they were already sourcing in the country, 13 percent said they’re starting to talk to suppliers there, and another 12 percent indicated they’re now considering doing business in India.

Those that were already operating in the country, however, are currently dealing with a nationwide shutdown and stay-at-home mandate for non-essential businesses and services. Factories making anything but food, pharmaceuticals and a few other need-to-haves are closed. While logistics services aren’t entirely locked down, a lack of labor means little is happening with the movement of goods.

“Container freight stations, inland container depots, wet ports are all still open…but labor is extremely limited so we’re actually seeing many delays at many of these ports, as well as severe trucker shortages,” Flexport ocean procurement manager for the Indian Subcontinent Dharshini Shegran said. “If your cargo was already gated into a postal port in India…it will likely not be able to get into the port till about 21 days from now.”

Manufacturing’s momentum in the country has been entirely disrupted.

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“There is going to be confusion over deliveries and demands as there is no fixed timeline by which the entire supply chain is going to get streamlined again,” Aditya Goyal, CEO and managing director of Anubha Industries, a denim and textile manufacturer in India, told Sourcing Journal. “It seems that an entire quarter will be lost and the financial damage that it will create will change the dynamics of the apparel trade forever. It will force everyone to redraw their businesses and we might not be [in] the best health to be able to do so.”

While 21 days isn’t long enough to single-handedly deal a fatal blow to the garment sector in India, a three-week recess on revenue in line with cancelled orders from retailers won’t be without longer-term ramifications.

“The impact on the factories is beyond imagination as no one was ready for this situation,” Aseem Kumar, general secretary of the Garment Exporters Association of Rajasthan (GEAR) in Jaipur, India, told Sourcing Journal. Kumar owns Fashion Images Overseas, a factory based in Jaipur, and is also a permanent invitee of India’s Apparel Export Promotion Council (AEPC).

“Most of the workers/labor in the factories are migratory labor as they belong to one state and work in other state,” Kumar. “For the safety of citizens of India, all transport systems, like roads and trains, have been stopped by the government. The workers have no option but to stay where they were. We are expecting huge losses and expect that the economy will go down, if coronavirus is not controlled soon.”

The effect, Gopinath Selvaraj, sales manager of India’s KG Denim Limited, told Sourcing Journal, “will test everyone.”

For now, factories workers will be paid during the lockdown by order of the Indian government. But how long often cash-poor factories can keep that up remains to be seen.

“There is a clear directive to not do any pay cuts and pay all workers,” Ramit Aggarwal, CEO of sourcing company Synergies India, said. However, he added, the 21-day no-revenue period will bring about serious challenges for suppliers.

“Factories will come under tremendous financial pressure as all sales have stopped, whereas fixed expenses still continue, like lease, electricity, salaries, bank interest on financial limits, etc.,” he said.

Kumar is similarly concerned about his factory’s ability to pay.

“The government has instructed that all factories have to pay the salaries to their staff till April 30, 2020. As there is no production, almost the whole world is locked down, this is making it difficult for the factory owners to pay their staff as there is no rotation of money,” he said. “All factory owners are expecting that government will soon come out with some package for the employees and will not burden any factory owners.”

The impending package may be able to help sustain factories provided the lockdown isn’t extended—which manufacturers in India don’t expect to see since the case count in India hovers at just 649, according to World Health Organization data Thursday, and they believe the three-week lockdown will effectively stem the spread. But what happens beyond that will have a lot to do with how retailers handle the order contracts they’re currently reneging on.

“At the end of the day, it all boils down to the brands and retailers honoring their commitments to their vendors,” Goyal said. “Their profits might have been due to their smart marketing and designs, but finally it was the product which sold and which has been manufactured and invested into by their vendors. Leaving them in a lurch now with inventory and cancelled orders is definitely going to drive manufacturers across the supply chain to close shop and this will create an insurmountable livelihood crisis for the workers.”

April 14 is the slated reawakening date for India and its operations, and provided coronavirus cases haven’t spiraled over that time, the expectation is that the lockdown will be lifted and factories will at least have the option to resume work, provided there’s work to resume.

“My biggest concern is how the economy will survive if we do not find the cure for COVID-19,” Kumar said.