Coronavirus is a global health emergency, and is expected to impact all economies worldwide, including India. Like other countries, India also is facing supply chain issues, particularly in the manufacturing sector. However, many believe the coronavirus impact could eventually prove positive for India.
Impact of coronavirus on India
Similar to other countries, the coronavirus outbreak is proving to be an issue for India’s supply chain network. Many Indian industries, such as pharmaceuticals, information technology and automotive, depend heavily on China for critical raw materials.
The electronic industry in India relies heavily on Chinese imports, which form a significant portion of India’s total imports. In 2018-19, the country imported about $20.6 billion worth of electronic items from China. Similar is the case with automobile and auto component makers.
Many Chinese factories that were expected to open by mid-February are still closed. And, those that have reopened are operating at a fraction of the capacity. Moreover, there is no clarity over when the factories will open or start operating at full capacity.
The virus that appeared to be receding a couple of days back has seen a spike in the number of confirmed cases as of Thursday. On Friday, 121 more deaths were reported in China due to coronavirus, including 116 from the Hubei Province. With the new numbers, the total death count across the country is now close to the 1,500 mark.
Along with China, at least 25 more countries have reported confirmed cases of the virus. Moreover, most nations have evacuated their citizens from Hubei. So far three deaths have been outside Mainland China – one each in Japan, Hong Kong and the Philippines.
Potential to emerge as manufacturing hub
Owing to such uncertainty surrounding coronavirus, Indian companies are looking for alternative sources to meet their demands. In the short run, this might lead to a spike in costs. However, in the long run, experts believe current disruptions in China could benefit emerging economies, such as India and Vietnam.
Many see coronavirus as an opportunity for India to boost its manufacturing and industrial prowess. This would help the country to lower its dependence on external supplies. However, to turn this into a reality, the government will need to step in to give a conducive environment to the companies.
“Very hard to say what will manifest. However, the outbreak of the coronavirus provides a good opportunity for India to follow an export-driven model," India’s Chief Economic Advisor Krishnamurthy Subramanian, said recently, according to Business Today.
Experts believe Indian companies should not just come up with alternative plans to meet their import demands, rather overhaul their business plan to help other countries facing supply chain issues. For instance, India is currently seen as a potential alternative supplier for parts of optical, medical and surgical instruments.
Apart from India, countries such as Vietnam, Indonesia and Malaysia could also emerge as alternative suppliers.
More ways India could benefit
Coronavirus may also cause a shift in global investment from China to other emerging economies. Experts believe that production activities in China could likely remain subdued for two quarters before bouncing back. Thus, it may force foreign entities with investments in China to move their money elsewhere.
Many feel that India stands a good chance to emerge as a manufacturing hub, but for that to happen, the government needs to come up with business-friendly trade policies. Many Indian traders across several industries have already seen a surge in order queries. Moreover, analysts expect more investment opportunities for emerging economies owing to the coronavirus outbreak in China.
Another way India could benefit due to coronavirus is by taking on distressed oil supplies. China, which is Asia’s no. 1 importer of oil, is unable to take deliveries due to the outbreak. This is forcing companies to offer distressed oil supplies to India.
India’s Bharat Petroleum has already gotten supply offers from the Caspian Sea and South America for March loading. These shipments, which were originally meant for China, are showing lower prices and could lead to up to 15% more returns when processed, R. Ramachandran, director of refineries at Bharat Petroleum told Livemint. Crude at lower prices could come as a relief for Asian refiners, which have been struggling due to record-low margins.