Regional lockdowns, imposed by various states, are preventing the return of migrant laborers to their workplace, thereby impacting several sectors including the critical manufacturing industry, India Ratings and Research said.
Acknowledging the necessity of such moves to control the corona virus outbreak, the ratings agency, said that a prolonged disruption will even dampen migrant laborers' sentiments.
"The manufacturing sector will be at the forefront of the disruption, particularly micro, small and medium enterprises in Maharashtra and Delhi," it said in a statement.
"Though the labor shortage could accelerate the automation process wherever feasible, the near-term challenges in the form of low capacity utilization, higher production cost and hence, margin contraction are likely to impact the companies facing labor shortage due to reverse migration."
According to Ind-Ra, manufacturing firms in Delhi and Haryana are more susceptible to the reverse labour migration than firms in Maharashtra and Gujarat.
"The states of Delhi and Haryana are classified as highly vulnerable with their respective MDR (Migrant Dependency Ratio) at 93.52 and 51.74 whereas Maharashtra and Gujarat are classified as moderately vulnerable with their MDRs at 29.19 and 17.12," the statement said.
The agency estimates the manufacturing sector employs close to 6 million 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 pandemic," the statement said.
"On the other hand, the construction sector with MDR of 3.72 is more dependent on the intra-state labor; hence, any operational disruption would be limited, as intra-state movement of people has been gradually relaxed."
However, Ind-Ra said that due to the dented demand in the real estate sector, project execution could be stalled and delayed, affecting the employability of intra-state laborers.
"Similarly, in case of the manufacturing sector, the unavailability of skilled labor, which have moved back to their respective states, has led to significant pressure on the output, leading to underutilized capacity.
"In fact, some micro, small & medium enterprises witnessing some demand recovery from exports are operationally challenged due to the labor shortage."
As per Ind-Ra, manufacturing cost is likely to increase in such a scenario, 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 2QFY21, if not passed on to end-users," the statement said.
In addition, the ratings agency said that Bihar, which is considered to be the provider to the country, may face a labour shortage in agriculture.
"Agriculture contributes around 22.2 per cent to the economic growth of the state and it employs 600,000 migrant labourers in agriculture," Ind-Ra said.
"Furthermore, the state employs a total of 8.5 million migrant laborers from the neighboring states. The overall impact of reverse migration on agriculture in Bihar will depend on the portability of the workers who have returned from different states to Bihar in the agricultural sector.".