HIGHER RISK: Coronavirus outbreak is set to disrupt alternative supply sources
New Delhi/Mumbai/Bengaluru : Several China-dependent industries in India are facing critical shortages of raw materials as factories there remain crippled by the deadly coronavirus outbreak for more than a month. To make matters worse, the spread of the disease to other countries is now threatening to disrupt alternative sources of supply.
The World Health Organization’s latest global risk assessment has placed the epidemic at the “highest”, sparking a new problem —a fear psychosis that has rattled financial markets and is likely to squeeze liquidity for companies.
“We have to appreciate that the Indian economy is heavily dependent on China, which, in turn, accounts for 20% of global GDP,” said Arindam Som, an analyst at India Ratings.
“If global growth slows, it will be difficult for India’s economic growth to rise,” he said. “The outbreak has created tremendous uncertainty, with the virus having spread beyond China to countries such as Italy.”
So far, manufacturers of products such as electronics, which are heavily reliant on China, were hoping that factories there would have largely resumed operations. But now all such bets are off.
“I would say that about 90% of factories outside Wuhan (the disease epicentre) have reopened, but they are operating at about 30%-40% of capacities because they don’t have enough workers,” said Vinod Sharma, managing director of Deki Electronics and chairman of the Confederation of Indian Industry’s (CII) electronics committee.
“Until now we were missing out on supply of one or two items, but now we are getting into a critical period,” Sharma added.
Electronic items such as mobile phones and even sourcing of motors and compressors for washing machines are facing disruption. Drugmakers and fertilizer companies will face imminent shortages if the situation is not resolved soon, industry executives said. There are also deepening concerns on supply of auto parts from countries such as China. “The situation is changing every day”, which means “we have to pretty much play it by the ear”, said Vikram Kirloskar, CII president and vice chairman of Toyota Kirloskar Motors. The automaker has been able to manage the situation, but the impact would vary for other companies in the sector, he said.
The Association of Indian Forging Industry (AIFI) said in a statement that China comprises 27% of India’s auto component imports.
S. Muralishankar, president of AIFI, said in an interview that forged and machined metal parts are heavy and can be viably imported only by sea.
“Sea shipments are suspended until further notice and airfreight for heavy parts is expensive. Vehicle manufacturers are finding it difficult to plan production beyond the inventory available to them,” he said, estimating that India’s vehicle production in March could be hit by up to 20%.
A Raymond Fasteners India Pvt. Ltd, the local unit of the French supplier of small parts such as connectors and fasteners, is airlifting parts from its plant in China’s Zhenjiang.
“Disruption in parts procurement from China is also an opportunity for Indian suppliers as all major global vehicle manufacturers are now doing risk assessment with supply chain that came down crashing due to the epidemic,” a senior executive at an engine component supplier said on condition of anonymity.
To alleviate the pain of the local industry, the government has introduced measures such as round-the-clock port clearances of goods. Still, imports of vital inputs such as bulk drugs remain a worry.
A senior government official said on condition of anonymity that the aviation ministry is working on a proposal to procure six tonnes of active pharmaceutical ingredients (APIs) for Cipla from China.
“Most API manufacturers in China are not working at full capacity, but are working partially, and shipments are coming in,” Cipla’s global chief financial officer, Kedar Upadhye, said in a phone interview.
“We have some stock that we always maintain, which came in handy during this emergency. Whatever vendors have already manufactured, we have requested them to ship,” he said. “As of now there is no problem in terms of API inventory, but in a month or a month and a half, if the plants in China don’t operate fully, then there might be an issue.”
Biocon chairperson and managing director Kiran Mazumdar Shaw said if China remains closed for an extended period of time, it will cause a huge collateral damage to local drug makers.
With the spread of the disease to countries such as Iran, Italy and South Korea, alternative export and import destinations will be harder to find.
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