Coronavirus & its impact on various sectors
The number of coronavirus cases in India rose to 29, including 16 Italians touring through Rajasthan, the government said on Wednesday. The trade impact of the coronavirus epidemic for India is estimated to be about $348 million. The country now figures among top 15 economies most affected by the manufacturing slowdown in China, says a UN report. This is how Confederation of Indian Industry put forth the impact analysis for various sectors:-
The impact would depend on the extent of their business with China. The shutdown in China has prohibited import of various components affecting both Indian auto manufacturers and auto component industry. However, current levels of inventory seem to be sufficient for the Indian industry. In case the shutdown in China persists, it is expected to result in an 8-10 per cent contraction in Indian auto manufacturing in 2020. However, for the fledgling EV industry, the impact of coronavirus may be greater. China is dominant in the battery supply chain, as it accounts for around three-quarters of battery manufacturing capacity.
Though India is one of the top formulation drug exporters in the world, the domestic pharma industry relies heavily on import of bulk drugs (APIs and intermediates that give medicines their therapeutic value). India imported around Rs 24,900 crore worth of bulk drugs in FY19, accounting for approximately 40 per cent of the overall domestic consumption. With India’s API imports from China averaging almost 70 per cent of its consumption by value, importers are at the risk of supply disruptions and unexpected price movements. For many critical antibiotics and antipyretics, dependency on imports from China is close to 100 per cent. These APIs require large capacities of fermentation boilers, a USP of Chinese manufacturers, giving an upper hand to Chinese manufacturers. Delivery and tracking of consignments are still uncertain within China whether inward or outward.
Local dyestuff units in India are heavily dependent on imports of several raw materials, including chemicals and intermediates, from China. Delayed shipments from China and a spike in raw material prices are affecting the dyes and dyestuff industry, especially in Gujarat. Nearly 20 per cent of the production has been impacted due to the disruption in raw material supply. China is a major supplier of specialty chemicals for textiles, especially Indigo required for denim. The business in India is likely to get affected and people are securing their supplies. However, it is also an opportunity since the US and the EU will try and diversify their markets and mitigate China risk. Some of this business can be diverted to India if taken advantage of.
China is a major supplier both for the final product as well as the raw material used in electronics industry. India’s electronics industry is fearing supply disruptions, production reduction, impact on product prices due to heavy dependence on electronics component supply-directly and indirectly-and local manufacturing. The spread of coronavirus could have pushed down the sales of top electronic companies and smart phone makers which have major supplies to India.
Solar power project developers in India continue to source solar modules from China. Modules account for nearly 60 per cent of a solar project’s total cost. Chinese companies dominate the Indian solar components market, supplying about 80 per cent of solar cells and modules used here, given their competitive pricing. Chinese vendors have intimated Indian developers about delays happening in production, quality checks and transport of components, due to the outbreak. As a result, Indian developers have started facing a shortfall of raw materials needed in solar panels/cells and limited stocks.
The extended Lunar New Year holidays in China have adversely impacted the revenue and growth of domestic IT companies, operating out of China. IT companies are heavily dependent on manpower and are not able to operate due to restriction in movement of people arising from lockdown and quarantine issues. Consequently, they are not able to complete or deliver the existing projects in time and are also declining new projects. Further, the global customers for Indian IT companies in China have started looking for other service providers in alternate locations such as Malaysia, Vietnam, etc.
There have been complaints of shipment delays between India and China, there are serious concerns regarding the overall earnings of Indian shipping companies in the first quarter of 2020. There has been a sharp drop in the dry bulk cargo movement since the third week of January 2020, as the shutdown in China has meant that ships cannot enter Chinese ports.
Tourism & Aviation
The aviation sector has also been impacted by the spread of coronavirus. The outbreak has forced domestic carriers to cancel and temporarily suspend flights operating from India to China and Hong Kong. Carriers such as Indigo and Air India have halted operations to China. The temporary suspension of flights to China and Hong Kong would lead to domestic carriers missing out on gross revenue targets.
Many garment or textile factories in China have halted operations owing to the outbreak of coronavirus, adversely affecting exports of fabric, yarn and other raw materials from India. The disruption is expected to slow down cotton yarn exports by 50 per cent, leading to a severe impact on the spinning mills in India. Due to this slowdown in the flow of goods and hence revenue, textile units may be hampered in making annual interest and repayments to financial institutions, thereby defaulting their dues. This will also adversely impact the demand from cotton farmers, who were already witnessing subdued prices and fear that the said price may fall further if the China crisis continues unabated. It may be mentioned that India already has a price disadvantage against countries like Vietnam, Pakistan and Indonesia which have duty free access to China for export of cotton yarn. On the other hand, the coronavirus issue in China unfolds a big opportunity for all those industries where China is a major exporter.