Explained: How slowdown in auto sector may imperil thousands of units in Pune’s industrial hub

Parthasarathi Biswas

With orders down by 20 per cent, it is now a question of survival for these units.

The fear of an economic slowdown is not something new for the over 14,000 small and medium-scale industries which dot the industrial landscape of Pune and Pimpri-Chinchwad. With orders down by 20 per cent, it is now a question of survival for these units, which are an intrinsic part of the value chain of the district s automobile cluster.

These companies, which collectively employ nearly 5 lakh workers, are bracing for worse times. Many of them are also facing the unenviable option of either laying off their workforce or downing their shutters.

How auto sector drives the region

Pune, Pimpri Chinchwad, Chakra-Talegaon, Ranjangaon and other industrial zones of Pune district are heavily dependent on the automobile original equipment manufacturers (OEMs), which have been operating for several decades. Tata Motors, Bajaj, Volkswagen, Mercedes Benz and Mahindra and Mahindra are some vehicle manufacturers whose plants have acted as catalysts for the growth of subsequent business eco-system.

The auto OEMs, through their vendors and sub-vendors, have, in turn, led to the growth of many entrepreneurs who acted as suppliers. These entrepreneurs started their journey due to the conducive environment here, which involved availability of quality manpower and ready business. Over time, they started sub-contracting work to others, thus completing the value chain.

The growth of a major industrial eco-system in the area encouraged the growth of service and ancillary industries. An excellent example of this is the twin township of Pimpri-Chinchwad, where a planned township came up to accommodate and support those working in a major industry.

Given the robust growth in the sector till December last year, most of the units had availed of institutional finance to enhance their capacities. Most units even started operating in three shifts, to ensure a higher output and providing workers the opportunity to earn overtime.

The shadow of slowdown

Since January, the industrial landscape of the district has started feeling the brunt of the slowdown. As OEMs struggled with low sales, the amount of work they give to their vendors and sub-vendors started falling. The first casualty was the overtime for workers, which has stopped in most companies. Most of the small and medium-scale industries are now working in only two shifts.

Work is also drying up for contract labourers, who don t enjoy the same protections in the workplace that permanent workers do. While the exact number of such labourers is hard to ascertain, these workers are increasingly facing the prospect of unemployment as even their contractors are finding it difficult to get work.

For the industrial units, the bigger worry is repaying their bank loans and avoid being labelled as a non-performing asset. Between bank loans and establishment costs, the smaller players may find it prudent to shut down, in case the slowdown continues. Back in 2008, when a recession had hit the country, nearly 20 per cent of the units had shut down.