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Corona Outbreak Sends Its Shivers To Indian Economy

Industry pundits have been unanimous in claiming that if the disruption is prolonged it could have a bearing on India’s imports from the country which is critical for domestic economic activity.

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On 12th March 2020, Sensex saw its steepest crash in its history by witnessing a plunge of nearly 2,919 points.  In the wake of WHO announcing Coronavirus Outbreak to be pandemic, market analysts are predicting a further bloodbath on the Dalal Street. With cases rising rapidly outside of China and the World Health Organisation, the risk of both direct (local transmission) and indirect impacts (tourism, supply chain disruptions and external demand) on the economy have risen. 

According to a UN report, the trade impact of the coronavirus epidemic for India is estimated to be about US$ 348 million dollars and the country figures among the top 15 economies most affected as slowdown of manufacturing in China disrupts world trade. With the GDP growth reaching a six-year low of 4.7% in the last quarter of 2019 according to revised data by National Statistic Office, the rapid spread of the novel Coronavirus is dampening both global and Indian economic revival efforts.

Industry pundits have been unanimous in claiming that if the disruption is prolonged it could have a bearing on India’s imports from the country which is critical for domestic economic activity.   Priyanka Kishore, head of India and South East Asia economics at Oxford Economics maintained, “Despite all efforts, India cannot escape a hit to its exports from the global economic damage that COVID-19 is likely to cause. Services exports are also likely to come under additional pressure following the recent travel restrictions, which are not reflected in our baseline forecast yet. Lastly, around 26% of India’s core intermediate imports (ex food and energy) are from China and Hong Kong according to UN Com trade data, which could have some adverse repercussions for Indian manufacturing and, in turn, domestic demand.”

As per a CII analysis, China supplies 43% of India’s imports of the top 20 goods (at 4-digit HS code) that India buys from the coronavirus-affected country, including mobile handsets ($7.2 billion import from China), computers ($3 billion), integrated circuits, and other inputs ($7.5 billion), fertilisers ($1.5 billion), API ($1.4 billion) and antibiotics ($1.1 billion). 

 “The Coronavirus pandemic in China is impacting critical inputs for Indian industry which may adversely impact small businesses and some jobs. A joint Government-industry task force can institute risk mitigation measures on an immediate basis,” said Chandrajit Banerjee, Director General, CII, adding, “While the situation is serious, there is no call for panic as Indian industry is resilient and can enhance domestic production to meet temporary shortfalls.” CII has therefore suggested a quick policy action on three dimensions, namely, mitigating risks arising from restrictions of imported inputs or disruptions to supply chains; shielding Indian exports to China; and boosting domestic manufacturing.

Industry observers reckon that the prospects of a hit to the Indian economy via weaker exports and disrupted imports is already being felt with the outbreak. Besides, industries such as shipping, aviation, and tourism in the services sector are also severely affected as supply chains from China have been deadlocked. It has been estimated that airlines globally (and to a greater extent the domestic industry) are set to lose US$113 billion is the virus spreads further as per IATA.

Rajan Wadhera, President, SIAM in a brief statement issued to the Media highlighted that many automakers in India import about 10% of their raw materials from China. The disruption in availability of these parts are likely to critically hamper production across all segments, namely Passenger Vehicles (PV), Commercial Vehicles (CV), Three-Wheelers (3W), Two-Wheelers (2W) and gravely affecting Electric Vehicles (EVs). He further emphasized that with anticipation of the Chinese New Year, Indian Auto Industry had maintained inventory in the beginning of the year, but with the current lockdown in China, supply for BSVI vehicles is likely to get impacted. Manufacturers are exploring alternatives to fulfil their supply chain demands but that would also take a substantial amount of time to reach stable production scale as these components would need regulatory testing, reiterated Wadhera.

Ashwajit Singh, Managing Director, IPE Global maintains, “All said and done, Covid-19 is likely to have an adverse economic impact on the world economy. While the government is going all out to control the rising instances of Corona in the country, a pandemic such as this needs a collective response and a behavior shift at all levels to be able to minimize the impacts on public health and the economy.”


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