Reverse labour migration may lead to multiple headwinds for manufacturing sector: Ind-Ra

Mumbai (Maharashtra) [India], Aug 5 : The recent surge in COVID-19 positive cases and subsequent lockdown imposed by various states are preventing the return of migrant labourers to their workplace, though such measures are necessary to control the outbreak, India Ratings and Research (Ind-Ra) said on Wednesday.
Moreover, a prolonged disruption will even dampen migrant labourers' sentiments. The manufacturing sector will be at the forefront of the disruption particularly micro, small and medium enterprises in Maharashtra and Delhi.
"Though the labour shortage could accelerate the automation process wherever feasible, near-term challenges in the form of low capacity utilisations, higher production cost and hence margin contraction are likely to impact companies facing labour shortage due to reverse migration."
The Ind-Ra report delves into the impact of labour shortage across various sectors in the top five migrants receiving states: Maharashtra, Delhi, Haryana, West Bengal and Gujarat.
It highlights that manufacturing firms in Delhi and Haryana are more susceptible to the reverse labour migration than the firms based out of Maharashtra and Gujarat.
Delhi and Haryana are classified as highly vulnerable with their respective migrant dependency ratio (MDR) at 93.52 and 51.74 whereas Maharashtra and Gujarat are classified as moderately vulnerable with their MDRs at 29.19 and 17.12.
Ind-Ra estimates the manufacturing sector employs close to 60 lakh inter-state migrant workers. Hence, across different states, the manufacturing sector is exposed to a higher risk with MDR at 12.86 due to labour shortages driven by the pandemic.
On the other hand, the construction sector with MDR 3.72 is more dependent on intra-state labour. Hence, any operational disruption will be limited as intra-state movement of people has been gradually relaxed.
However, Ind-Ra believes that due to the dented demand in the real estate sector, project execution could be stalled and delayed, affecting the employability of intra-state labourers.
Similarly, in case of the manufacturing sector, the unavailability of skilled labour -- which have moved back to their respective states -- has led to significant pressure on the output, leading to underutilised capacity.
In fact, some micro, small and medium enterprises witnessing some demand recovery from exports are operationally challenged due to the labour shortage.
In such a case, Ind-Ra believes that manufacturing cost is likely to increase, led by either loss of economies of scale or higher wages of workers, as demand exceeds supply. Hence, the margins for such companies could come under pressure in Q2 FY21 if not passed on to end-users.