The novel coronavirus or COVID-19, which has claimed 2,800 lives in China and affected more than 80,000 people worldwide, is taking a toll on the global economy. India’s automobile and pharma sectors, which depend on China for raw materials, are already feeling the pinch. PM Narendra Modi’s government said it is keeping a close watch on the likely impact of the virus on the Indian economy.
ThePrint asks: Is Indian economy equipped to deal with the global disruption caused by coronavirus?
India needs structural reforms to derisk its supply chains to counter disruptions like coronavirus
Director General at Confederation of Indian Industry (CII)
The coronavirus episode is certainly impacting Indian industry because it has disrupted the manufacturing capacity of the largest manufacturer and exporter in the world — China. Its spread to other parts of the world is a concern because it is likely to lead to disruptions to other geographies as well. For Indian industry that has a large domestic market, local supply chains and a smaller engagement in global value chains, it is proving to be less of a disruption.
The challenges are so far limited to a few specific sectors that have strong outward connect. We have to look at how long and how wide the coronavirus will live and according to the IMF, it should be contained within a few weeks. The takeaway from the disaster is that India needs to derisk its supply chains, which is possible with further movement on ease and cost of doing business and continued structural reforms. India needs to move rapidly towards becoming a global manufacturing hub for most items.
I think the Indian government has been proactive so far and has done detailed consultation with industry and other stakeholders to assess impact and also look at opportunities arising.
India has always wanted to displace some of value chain production from China. This is the time to pursue it
Director and chief executive, ICRIER
There could be a short-term disruption as well as long term-benefit due to the coronavirus outbreak. The short-term disruption is linked to the global supply chain from China. Pharmaceuticals and electronic components are examples where the disruption is expected. Now the question is how quickly we can find a substitute in the supply chain in case of a disruption.
For electronic components, the problem is that India can’t approach other countries like Vietnam and Thailand because their value chains are also linked to China. If we go to Korea and Japan, the costs will make the appliances uneconomical.
But in the long-term, it is an opportunity for India to start displacing some of the value chain production from China. We have always wanted to do that. As China became a stronger economy, the industries moved out to Vietnam, Bangladesh, Indonesia, but India attracted very few and was not able to benefit from China’s development and rise in per capita income. This is another opportunity to begin afresh. India needs to address its disabilities, especially at a time when it is aiming for becoming a $1trillion-export economy. India cannot become a $5-trillion economy without first becoming an export economy, for which it will have to attract investments.
Some of India’s export incentives may not be compatible with multilateral conditionalities. India needs to look at alternative ways to attract investments. So, the government’s reduction of corporate taxes is a good step in this direction. We will have to calibrate subsidies that are not compatible with WTO to production-linked incentives that are compatible with our WTO commitments.
India couldn’t capitalise on US-China trade war. But with coronavirus-left vacuum, India has another opportunity
Senior Fellow & Head of Research, Pahle India Foundation
It would be naive to think that the coronavirus will have no impact on the global economy. The first sector to be visibly hit was tourism. With time, the economic impact of the virus has only worsened. Global value chains have been disrupted and the outbreak will cause an adverse impact on both manufacturing and on exports. Countries that are heavily dependent on Chinese manufacturing capabilities are already feeling the pinch. This is temporary, but it is enough to cause a significant dip in the region’s output and, therefore, global GDP.
For India, the impact of the coronavirus could go both ways. Exports to India will slow down. Sourcing raw materials will become difficult, possibly driving up the prices of many commodities; but it need not stop here.
India was not able to capitalise on the US-China trade war to capture exiting manufacturing business. This time, India has another opportunity. The pandemic has created a huge vacuum in the western world for manufacturing inputs. This may be a good time for India to attempt to fill that vacuum and recapture many lost markets.
It could be a time for India to regain its lost momentum in exports. It could be a time for Make in India to shine. Opportunities abound, but for India to be able to capitalise on it, credit has to pick up. If banks don’t start lending, this will be another lost opportunity in a long list of many.
India facing sluggish growth, does not have manufacturing capacity to fill up export gap created by China
Associate Professor (Economics) at O.P. Jindal Global University
The coronavirus has had a huge impact on exports from China. It is widely claimed that India could increase its exports and fill the gap that has been created by China. However, India itself is facing sluggish growth and does not have manufacturing capacity to bump up exports. Moreover, India’s own imports from China stand at 18 per cent of its total imports. Most of the imported items include electrical machinery, organic chemicals, nuclear reactors and allied machinery and iron and steel. Since electrical parts and chemicals are the main raw materials for electronics and drugs, the prices of these are expected to go up in the domestic market.
India is one of the major producers of pharmaceutical drugs, which will be affected due to unavailability of the raw material from China. Domestically, Indian economy is going to face high inflation with even slower economic growth. So, India will not be able to enhance global exports and would rather face the problem in its domestic economy as well.
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By Unnati Sharma, journalist at ThePrint