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What is the Impact of Coronavirus on Indian Economy?

Coronavirus outbreak was first reported in Wuhan, China, on 31 December 2019. Before reading in detail about the impact, first, let us study about coronavirus.

Coronavirus (CoV) is a large family of viruses that causes illness. It ranges from the common cold to more severe diseases like Middle East Respiratory Syndrome (MERS-CoV) and Severe Acute Respiratory Syndrome (SARS-CoV). The novel coronavirus is a new strain of the virus that has not been identified in humans so far.

WHO can't ignore the fact that the outbreak of COVID-19 in China is expected to have a significant impact on the economy globally, including economic slowdown, trade, supply chain disruption, commodities, and logistics.

The GDP of China is expected to decelerate by 1 - 1.25 percentage points over 2020 because of less production. In China, various cities and provinces are in lockdown mode. China accounts for approximately 19.71% of global GDP at purchasing power parity, and obviously, it will impact the economy globally. Therefore, it is estimated that the global GDP will suffer an impact of around 0.5%.

In terms of trade, China is the world's largest exporter and second-largest importer. It accounts for 13% of world exports and 11% of world imports. The lockdown will affect around 500 million people in the country that will profoundly impact its consumption of goods.

Impact of Coronavirus on the Indian Economy.

In terms of Imports:-

Up to a large extent, it will impact the Indian industry. In imports, the dependence of India on China is huge. Of the top 20 products (at the two-digit of HS Code) that India imports from the world, China accounts for a significant share in most of them.

India's total electronic imports account for 45% of China. Around one-third of machinery and almost two-fifths of organic chemicals that India purchases from the world come from China? For automotive parts and fertilizers, China's share in India's imports is more than 25%. Around 65 to 70% of active pharmaceutical ingredients and about 90% of certain mobile phones come from China to India.

Therefore, we can say that due to the current outbreak of coronavirus in China, the import dependence on China will have a significant impact on the Indian industry.

In terms of Exports:-

China is India's 3rd largest export partner and accounts for around 5% share. The impact may result in the following sectors, namely organic chemicals, plastics, fish products, cotton, ores, etc.

We also can't ignore that most of the Indian companies are located in the eastern part of China. In China, about 72% of companies in India are located in cities like Shanghai, Beijing, provinces of Guangdong, Jiangsu, and Shandong. In various sectors, these companies work, including Industrial manufacturing, manufacturing services, IT and BPO, Logistics, Chemicals, Airlines, and tourism.

It has been seen that some sectors of India have been impacted by the outbreak of coronavirus in China, including shipping, pharmaceuticals, automobiles, mobiles, electronics, textiles, etc. Also, a supply chain may affect some disruptions associates with industries and markets. Overall, the impact of coronavirus in the industry is moderate.

According to the CLSA report, pharma chemicals and electronics businesses may face supply-chain issues, and prices will go up by 10 percent. The report also says that India could also be a beneficiary of positive flows since it appears to be the least-impacted market. Some commodities like metals, upstream and downstream oil companies, could witness the impact of lower global demand impacting commodity prices.

According to CII, GDP could fall below 5% in FY 2021 if policy action is not taken urgently. It is said that the government should take some strong fiscal stimulus to the extent of 1% of GDP to the poor, which would help them financially and also manage consumer demand.

In the third quarter (October-December), growth is slowed down to 4.7%, and the impact of COVID-19 will further be seen in the fourth quarter.

FICCI survey showed 53% of Indian businesses had indicated a marked impact of COVID-19 on business operations. And 42% of the respondents said that up to three months could take for normalcy to return.

Let us have a look at the sector-wise impact on the Indian industry.

Chemical Industry:-

Some chemical plants have been shut down in China. So there will be restrictions on shipments/logistics. It was found that 20% of the production has been impacted due to the disruption in raw material supply. China is a significant supplier of Indigo that is required for denim. Business in India is likely to get affected, so people securing their supplies. However, it is an opportunity. US and EU will try and diversify their markets. Some of the businesses can be diverted to India, which can also be taken as an advantage.

Shipping Industry:-

Coronavirus outbreak has impacted the business of cargo movement service providers. As per the sources, per day per vessel has declined by more than 75-80% in dry bulk trade.

Auto Industry:-

Its impact on Indian companies will vary and depend upon the extent of the business with China. China's trade, no doubt, is affected. However, current levels of the inventory seem to be sufficient for the Indian industry. If the shutdown in China continues, then it is expected to result in an 8-10% contraction of Indian auto manufacturing in 2020.

Pharmaceutical Industry:-

Despite being one of the top formulations of drug exporters in the world, the pharma industry of India relies heavily on import as of bulk drugs. Due to the coronavirus outbreak, it will also be impacted.

Textile Industry:-

Due to the coronavirus outbreak, several garments/textile factories in China have halted operations that, in turn affecting the exports of fabric, yarn, and other raw materials from India.

Solar Power Sector:-

Indian developers may face some shortfall of raw materials needed in solar panels/cells and limited stocks from China.

Electronics Industry:-

The major supplier is China in electronics being a final product or raw material used in the electronic industry. India's electronic industry may face supply disruptions, production, reduction impact on product prices due to heavy dependence on electronics component supply directly or indirectly, and local manufacturing.

IT Industry:-

The New Year holidays in China has been extended due to coronavirus outbreak that adversely impacted the revenue and growth of Indian IT companies.

Tourism and Aviation:-

Due to the coronavirus outbreak, the inflow of tourists from China and from other East Asian regions to India will lose, which will impact the tourism sector and revenue.

So, now you may have come to know about coronavirus. An outbreak of COVID-19 impacted the whole world and has been felt across industries. World's second-largest economy China became standstill. Its epidemic is declared as a national emergency by the World Health Organization. In India, the impact may felt through supply chain disruptions from China and also as regional players, who imports from China.

So this is how the coronavirus is affecting and will affect India for the coming few months.

The Wolf Talk™ by Rahul Mehta

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