While India grapples with ways and plans to contain spread of novel corona nvirus that is spreading as wildfire across the globe, immediate casualty besides human health seems to be business and commerce. While airports across important business hubs witness lesser footfalls, many have closed down due to fears of a wider spread. The strains of the virus were first detected in Wuhan, China towards New Year Eve, 2019 has in three months has spread to more than 70 countries across the globe.
Figures of casualties and attempts are containing further spread is being tried out by governments with a slew of measures involving health care, diplomatic interventions and information campaigns, we can take bit of relief from the fact that deaths are being reported in 3% cases and rest 97% are reportedly recovering with quarantine. Though no immediate relief in the form of vaccine is expected, human populations need to rest their hopes on personal immunity and nature based interventions that needs to limit the casuality.
China accounts for about 16% of global exports and has a trade surplus of $301 bn, while India has robust trade relations with China, the impact of n-CoV is a cause of concern for us, especially Indian imports could witness supply disruptions. While important segments of trade and business that shall witness virus impact could be Electronics especially mobile handsets, Textile, Steel, Plastics, Leather, Aluminium, Ceramics, Gems and Jewellery, paper and Consumer durable.
India with a $56 bn imports from China witnessed a trade deficit of about $159 bn in 2019, which translates into a fact that in case of serious supply disruptions in China owing to n-CoV, we may face the imminent prospect of having to import such goods from other countries which shall further put our import budget bill under stress. It has been recently witnessed that sluggish demand and a show down in OPEC and Russia easing crude prices have brought about a slash in oil prices, however the impact is unlikely to ease the market in India.
If real impact of n-CoV is projected, in case of worst case scenario, cause of worry could be for the Consumer durables which has high import dependency from China as India imports about 45% of completely built consumer durable units from China apart from components servicing such durable. Option for importers would be alternative brands or equivalent components from other countries that could further up the import bill. From a consumer point of view such durable are going to get expensive or unavailable in next 3 to six months and cost escalation could be felt from April, 2020 onward.
Auto components and spares of which 18% directly comes from China is going to be a sector of concern for automobile sector that is already under tremendous stress owing to global recessionary trends over the past several months. It is estimated that India has stocks to cover up short term needs of auto components however in case China sees a prolonged virus threat and closure of its manufacturing hubs, India may not be prepared to calibrate or pep up domestic supplies through local manufacturing as it is not fully geared owing to easy option of imports that has been relied upon in the past. While individual customers may see spurt in prices of components including tyres, industry as a whole should see it as an opportune time to
Another sector of concern would be Electronic items especially mobile hand sets and other electronic components which account for nearly 67% of imports from China. Serious disruptions could felt due to this in India. Consumers may be compelled to postpone for forego purchases due to short budget or unavailability till the threat of virus tapers down in China. There is hope of revival of Indian industries, if it is estimated as an opportunity by entrepreneurs but of late India has turned into a middle man’s hub and businessmen are happy importing containers than setting up factories and braving the manufacturing challenges leading our country into a consumerist nation dependent on large imports of items that should essentially have been manufactured in India.
Another high impact area is Pharma raw materials as India has high dependency on imports from China in respect of Pharma bulk drugs. Though stocks are estimated to be available for next couple of months, pharma industry could face the heat of short supplies and high prices in case threat of virus does not lessen in next two months. It is critical that health care industry starts off a serious plan through a macro plan of pharma industry to short list items that would essentially be needed by vast majority of people in India through strong and strict governmental interventions.
Energy security is crucial for any nation, India has been slowly building up base for clean energy through harnessing of solar energy. However the flip side is that our country heavily relies on Chinese supplies for solar panels and related accessories. China controls the world market with 80% export market in this field. Supply disruptions due to virus could not only escalate costs but also make various projects non-viable due to project completion delays and overshot deadlines leading to legal disputes.
India exports about 27% of total cotton yarn to China. Even temporary closure or delay in exports is bound to put textile cotton yarn industry in turmoil owing to lower margins and slackening of domestic prices. However if Indian market readies itself as a sourcing hub of apparel, this could be used as an opportunity to boost up domestic production of Ready made Garment industry and offset the losses owing to global recession. However, domestic industry is surely going to face the challenge of rising prices of chemicals, machines etc that would nullify the gains. Consumer is surely going to see a sudden spurt in prices of RMG, textiles etc and could be forced to go in for more expensive options that could be inflationary in nature.
In a nutshell, fall out of n-CoV especially in case of a prolonged scourge could prove disastrous for Indian Industry especially in the wake of tight credit lines and global recessionary trends. While consumers are going to face challenges arising out of shortages and cost escalations, it is time Indian Industry rises up and proves its entrepreneurial skills to keep the damages limited through dynamic management decisions and timely governmental interventions.