Indian Industry Approaches Government with Relief Proposals Amid Middle East Supply Chain Crisis
In the wake of escalating disruptions to global supply chains stemming from the ongoing conflict in the Middle East, Indian industry representatives have urgently approached the government with a comprehensive set of suggestions aimed at mitigating the severe impacts on various sectors. The crisis has affected a wide range of inputs critical to manufacturing, from medicines and glass to sulphur, solvents, and polymers, prompting calls for immediate intervention.
Widespread Impact Across Multiple Sectors
The lack of gas availability has particularly hit industries hard, affecting sectors as diverse as ceramics, dyeing units, steel, aluminum, and plastics. This shortage has forced many small businesses to stare at the prospect of their loans turning into non-performing assets, leading to proposals for Covid-like loan relief measures. Industry bodies have suggested that the Reserve Bank of India issue a sector-specific advisory, allowing banks to treat gas-dependent manufacturing clusters as a temporary event and permitting an asset classification standstill for up to 90 days.
Freight and Logistics Challenges Intensify
Freight rates have surged dramatically, with the Drewry World Container Index jumping by 20% between February 26 and the latest Thursday, reaching $2,279 for a 40-foot container. Availability of shipping containers is becoming a critical challenge as vessels are forced to take longer routes, such as going around the Cape of Good Hope to reach Europe or the United States, rather than through traditional channels. This rerouting is widely expected to lead to a container supply crunch in the near future.
In response, industry representatives have proposed a time-bound freight support mechanism to offset these increased costs, especially for smaller businesses that are less equipped to absorb such shocks. The disruptions are not limited to maritime transport; export-import rail cargo volumes have reportedly dropped by up to 40% in certain areas, forcing operators to stable around 50 rakes and increasing empty wagon movement to 15-20%, compared to under 5% in normal times.
Proposals for Alternative Sourcing and Operational Measures
To combat supply chain bottlenecks, industries have suggested operationalizing a "green corridor" for the smooth flow of goods to key ports such as Sohar, Jeddah, and Khorfakkan. Additionally, there are calls to tap alternate markets for essential inputs: for fertilizers, sourcing potash from Canada and urea from Russia and Egypt; for sulphur, considering export curbs and sourcing from Russia, the United States, and Kazakhstan.
For critical medical supplies like helium used in MRI machines, industry has recommended restricting non-essential use, exploring sourcing from Russia, and recovering helium from geo-thermal sources. The disruptions have already prompted Chinese companies to increase active pharmaceutical ingredient rates, affecting medicines for conditions like blood pressure and diabetes.
Fuel and Insurance Solutions on the Table
Industrial clusters are seeking access to alternate fuels, such as furnace oil, diesel, and cooking gas, with permissions for quick switchovers to maintain operations. There is also a suggestion to allow industrial and commercial users with dual-fuel capability to prioritize piped natural gas over LPG, similar to measures for households.
An industry executive emphasized, "There is a need to establish a technical priority, with 80-90% continuity of LNG supply on an average for industries, such as glass, specialty chemicals, and ceramics for the next four to six weeks." The shutdown of furnaces due to gas unavailability threatens to impact food and pharmaceutical packaging, as well as containers for vaccines.
Long-Term Strategic Recommendations
Beyond immediate relief, medium- to long-term solutions have been proposed. These include developing a permanent domestic war-risk insurance framework to address conflict-related maritime disruptions, creating bilateral air freight agreements with alternate routing countries in Central Asia, East Africa, and Southeast Asia, and establishing a hedging framework for aviation turbine fuel.
Industries such as chemicals and petrochemicals have demanded the suspension or reduction of tariffs for three to six months due to surging costs. Road developers have also sought relief, suggesting that the current situation should be treated as a force majeure event, with project timelines extended due to a 30-40% rise in bitumen costs.
As the Middle East conflict continues to ripple through global supply chains, Indian industry's proactive engagement with the government highlights the urgent need for coordinated action to safeguard economic stability and ensure the continuity of essential manufacturing processes.
