CHENNAI: THE ECONOMIC CONUNDRUM

Chennai experienced its worst floods when the Cyclone El Nino struck the south Indian city and with various other factors added to it, it left a massive destruction in its wake, Chennai being the main business area of Tamil Nadu was brought to an abrupt standstill. Here we try to decode the Economic Pandemonium that was caused because of Nature’s fury.

THE ECONOMIC IMPACT:

As Chennai tries to return to its ordeal, it cannot seem to forget that a big chunk of the economy was washed away in the recent floods. The daily wage Labourers and small business units are the worst hit in this problem. Chennai produces almost 25% of the entire nation’s $38 billion production. In the organized sector the automobile industry is set to take a huge hit, as Chennai and the places surrounding it is a hub for automobile production.

Every unproductive manufacturing unit in and around the state is set to report a daily loss exceeding almost 180 crores to the industry as a whole. India exported around 3.5 million vehicles during the financial period of 2014-15, but this number is set to go down drastically. Apart from this the waiting periods of vehicles are also set to increase, normally the Royal Enfield plant in Chennai had a waiting period of 3-4 months this could easily go up by another month because of the natural disaster. The company which produces up to 40,000 units a month had to forego the production of nearly 4000 units in November alone.

Apart from Royal Enfield there are also many other companies who would take big hits in their revenue as they had a production facility in Chennai or were sourcing their units from there. The companies which stand to lose are Ford, Hyundai, Renault, Mahindra and Mahindra. Renault which is bound to release their new model “Kwid” stands to lose a lot as almost 70,000 units of it are already booked and the company could only deliver 6,000 units before the rains brought the production to a standstill. People who have booked the “Kwid” are set for longer waiting periods and the waiting periods will supposedly be increased by another month or two. Not only are Car manufacturers affected by this but so are the Original auto part vendors in and around the production hub. All in all the Indian economy lost $3 billion and may take some time to reinvigorate itself. Airtel, BSNL and other major network providers showed their magnanimousness in this situation by dropping the call and message rates, the banks in the area also waived off interest for the current month. These were the little comforting factors in the midst of mass anarchy.

FINANCIAL IMPACT:

Since Chennai is the Major auto manufacturing hub the impact of the floods on the city has been huge. Major Automobile companies are left reeling; although this is a known fact no company has declared losses in public, they privately admit it may be significant.Abdul Majeed, auto expert at PricewaterhouseCoopers, says: "Chennai is a huge supply hub for all the major original equipment manufacturers. So, even if a company does not have its plant in Chennai, it would be sourcing something or the other from a Chennai-based vendor. This will also impact the export of automobiles from India."

According to a senior executive in an automobile company, the real impact of the Chennai floods will be seen for months, as many of the equipment in the plants was damaged in the floods."While the equipment can be repaired, it might not allow us to meet our peak production capacity anytime soon," said the executive.

End Result:

Because a big hole was punched in its revenue, Chennai must now strive to achieve it status back as the automobile production hub of the nation with proper practices and financial practices that would bring it back to the top of the automobile production chart.