Effect Of COVID-19 On Manufacturing Industry
The outbreak of Coronavirus in China has hit almost every industry across the globe. The virus has now infected people in more than 25 countries, which have sent alarm bells ringing globally. China being the manufacturing hub for almost all raw material requirements across the globe, this sudden virus outbreak has rattled the global economy and disrupted supply chains. Internationally, companies from nearly every industry have been confronted with a stark reality with businesses not moving as usual.
China has major trading tie-ups with India and imports almost everything from raw materials, Agri products, fabrics, faucets, hardware etc. Thus, short supplies of commodities from China are sure to make Indian companies feel the heat of the situation. This would also impact the stock markets. But instead of panicking over the situation, the outbreak can be a win-win situation for the Indian industry if dealt in the right manner.
At a macro level, the economic consequences of such an outbreak are profound. As per the WTO, China is the biggest exporter and second-biggest importer of much merchandise. It acts as a hub of both demand and supply. It is also India’s largest trading partner, accounting for the biggest share (14%) of imports.
The impact will be felt across a range of industries dependent on the supply of inputs from China, including electrical components, non-electric machinery and machine tools, metallic and non-metallic products, organic and inorganic chemicals and pharmaceutical ingredients. It could throttle production or force companies to scout for alternative markets which can lead to higher input costs. For now, very few Indian firms have felt the impact.
This calls for the great opportunity for SMEs to robust their businesses but on the other hand, Indian firms are feeling the pinch as their raw material inventory is depleted.
India projects a beneficiary of positive flows since it is the least impacted market, as mentioned in the report by CLSA. "A look at India's key imports from China suggests that pharmacy; chemicals and electronic companies could see supply chains impacting future supplies if there is a prolonged disruption in production activity in China. On the other hand, any shift in global supply away from China could see some beneficiaries in India like garment and textile exporters, which could see busier order books in the short term," the CLSA report says.
Indian electronic, white and brown goods manufacturers depend heavily on Chinese suppliers, so prices of items like TVs, ACs, refrigerator, faucets, sanitary etc, will rise up could to 5-10 per cent beyond supply chain disruptions, the report adds. Commodities like metals, upstream and downstream oil companies, could witness the impact of lower global demand impacting commodity prices, it adds.
Notably, Indian manufacturers use 75 per cent Chinese components which heavily use in the real estate sector. Many components like panels open circuit boards, flax boards, imported LED lights are imported from China. Compressors for ACs and motors for washing machines are also sourced from the neighbouring country.
It is a great opportunity for India to take its manufacturing to the next level instead of depending on foreign countries like China for its raw material requirements. We should encourage SMEs and MSMEs to manufacture the raw components in order to meet the demands of the consumer and at the same time improve their production capacity to expand their businesses, hence, promoting the idea of 'Make In India'.
