New Delhi: Indian companies are bracing for a major supply shock as the rapid spread of the coronavirus infection in China has forced several factories there to extend a shutdown.

Typically, factories in China slow down production from late January due to the Lunar New Year holiday period, prompting many importers to stock up in anticipation of the closures. While this has muted the immediate business impact of the coronavirus outbreak, an extended disruption could derail the best-laid plans. Already many factories, which were due to reopen on Monday, have deferred their plans to next month amid fears that workers coming in close contact with those infected will lead to a spurt in cases of the disease.

Click Here for Coronavirus Live Updates

First reported in December, the coronavirus has killed 811 people in China and two outside the country, eclipsing the global toll from the outbreak of SARS that started in China almost two decades ago. The accumulated number of infections in the country has risen to 37,198. While the spread of the infection to India has been low, with three cases reported in Kerala, the disruption at factories as well as travel curbs to contain the spread are bound to hit local businesses dependent on Chinese factories.

“Since many factories have stopped production in China, they won’t be despatching goods. We may face problems in sectors where we maintain low inventories, for example electronics," said Ajay Sahai, director general and chief executive of the Federation of Indian Export Organisations.

India’s economy has become highly dependent on its northern neighbour, especially because of an exponential expansion in trade linkages over the past two decades. Trade with the world’s second-largest economy has expanded more than 18 times to $87 billion in 2018-19 since 2002-03, when China was grappling with the SARS virus.

Economists said a prolonged prevalence of the coronavirus in China would hurt India’s imports far more than exports.

A high-end phone maker in India is running so low on inventories it gets from China that it will run out of stock in 15 days, an industry executive familiar with the matter said. The plan was to place new orders in February, but due to shutdowns in China, manufacturers are not able to supply electronic products and components to India.

Indian importers were hoping that the situation would improve by mid-February, but the situation appears to be getting worse.

View Full Image Factories have deferred their reopening plans even as the coronavirus toll has eclipsed that of SARS epidemic (Graphic: Paras Jain/Mint)

“We are expecting prices to rise due to the coronavirus scare, because supply is short and demand isn’t slowing down," said Arjun Bajaj, director of TV maker Daiwa. Bajaj said manufacturers in China are not sure when they would be able to open shop.

Global firms too are feeling the heat. Facebook, for instance, has warned that it was expecting the coronavirus to impact production of its Oculus Quest virtual reality headsets. Some even expect delays to hit global icons such as Apple’s iPhone, according to a CNBC report.

Despite the government’s Make in India initiative, nearly 80% of components required for making phones in India come from China, said N.K. Goyal, president of Cellular Manufacturers Association of India. Since orders to factories in China are placed months in advance, manufacturers there will not only have backlogs due to factory closures, but also won’t be in a position to take new orders unless the situation improves.

Even makers of automobiles and their components are worried. Electrical and electronic parts such as sensors, power controls, engine control units, motors and batteries are imported from China.

If the virus threat goes out of control, then all major automakers and their suppliers worldwide would get affected, said an auto parts supplier. “The automotive supply chain is so integrated that if the supply of one part stops, the entire vehicle assembly stops."

For the Indian automotive industry, the outbreak could not have come at a worse time as manufacturers are transiting to the stringent Bharat Stage-VI emission norms amid a sales slump. If there is a shortage of parts, manufacturers’ investments and planning to comply with the emission norms from 1 April would be disrupted, said auto industry executives.

Chinese manufacturers supply to most of the top parts makers in India, which means production of vehicles may slow down in the next few months. Some of the product supplies that were in transit have already been hit due to port closures in China, an industry executive said.

In anticipation of the supply crunch, Indian retailers of consumer goods have started negotiations to source goods locally. “Our internal mandate is clear that whatever little dependency we have on Chinese imports, we will try and convert it into domestic sourcing," said J.P. Shukla, co-founder and chief executive of 1-India Family Mart, a chain of retail stores in India. Retailer V-Mart, which runs more than 200 stores across India, has temporarily stopped shipments from China.

Trade expert Biswajit Dhar said one of the biggest concerns from the China lockdown is that it could lead to a shortage of medicines and a spike in prices. In 2018-19, Indian companies imported bulk drugs and intermediates worth about $2.4 billion from China, which was a majority of the total imports.

“There are reports of specific API (active pharmaceutical ingredient) prices having gone up, but we have sufficient store of ingredients for the next couple of months," said Kedar Upadhye, chief financial officer of Cipla Ltd. “We’re hopeful that the situation alleviates and eases out by then. The industry might have to prepare with alternatives otherwise."

Abhijit Ahaskar, Prasid Banerjee, Malyaban Ghosh, Amit Panday, Suneera Tandon, Asit Ranjan Mishra, Leroy Leo, Utpal Bhaskar and Ayushman Baruah contributed to this story.

Subscribe to Mint Newsletters * Enter a valid email * Thank you for subscribing to our newsletter.

Share Via

Click here to read the Mint ePapermint is now on Telegram. Join mint channel in your Telegram and stay updated