India counts economic cost of corona outbreak
The Union government began on Tuesday a review of the economic consequences facing India due to the coronavirus outbreak and is likely to announce some measures soon to tackle disruptions feared to hit several industries that depend on raw materials from China, where factories have ground to a halt and ports shuttered in an effort to contain the swiftly spreading disease.
Union finance minister Nirmala Sitharaman met on Tuesday representatives from industries such as pharmaceuticals, energy, banking and automobiles and is scheduled to hold meetings with secretaries of different ministries on Wednesday before discussing the issue with the Prime Minister’s office (PMO) later.
“Secretaries [of ministries of the government] will work out solutions for specific sectors. In consultation with the PMO, the government will soon decide [on those measures],” she said.
Several industries have said that they fear their supply chains will dry up if the shutdown in China continues, a worry that has resonated across the globe as governments as well as multinational companies pare back their growth and revenue estimates.
The most prominent of the latest concerns expressed was by Apple which on Tuesday said it expects a shortage of parts for its widely selling iPhones, which could hit sales.
Since first coming to light on December 31, the virus — Covid-19 — has infected close to 74,000 people till Tuesday and had led to nearly 1,900 fatalities, defying near-total lockdown in parts of central China where the pathogen first started spreading.
Tuesday’s numbers represented the fewest new coronavirus infections since January and the lowest daily death toll for a week, but the World Health Organization said data suggesting the epidemic had slowed should still be viewed with caution.
In a briefing to reporters in Delhi, the Chinese ambassador to India appealed for New Delhi to relax restrictions – India has restricted the entry of people from China – and allow normal flow of people in order to restore trade.
According to Sitharaman, three sectors – pharmaceutical, chemicals and solar equipment -- were particularly “vocal” about their concerns. “Stock of raw material is not presented as a problem [in the meeting with the industry] … shipping lines are on the course … But, the question is, what would happen if this [spread of coronavirus in China] continues [for long],” she said.
The minister added that thus far “there have been no concerns” of prices rising due to “coronavirus” , and said that there are no reports of shortage of either medicines or medical equipment.
In the case of the pharmaceutical industry, India imports 70% of its raw material for drugs, called Active Pharmaceutical Ingredients (API), from China – making it particularly vulnerable to the crisis.
Officials from pharma firms said that while the situation is under control for now, there could be a shortage of drugs as commonly used as azithromycin or paracetamol if Chinese factories do not resume production in the coming weeks.
“If the situation doesn’t improve in next two-three weeks then pharma companies will begin feeling the pinch. It will, however, still take about a few months before consumers bear the brunt. At least three months, I’d say,” said Sunil Attavar, chairman and managing director, Group Pharma.
According to government data presented in Parliament in 2018, India imported APIs worth ₹18,372.54 crore in 2016-17, of which about ₹12,254.97 crore was from China alone.
At the meeting, the Confederation of Indian Industry (CII) presented a report and suggested a cut in import duties to help ease sourcing. It classified six segments as essential for imports – pharmaceuticals (including antibiotics), auto parts, fertilisers, medical devices, inorganic chemicals and textiles.
“There is a strong case for removing the higher customs duties imposed on certain products that primarily are sourced from China but may need to be sourced from other countries now,” it said.
The Budget has raised import duties on several products, particularly raw materials to boost domestic manufacturing.
Chinese ambassador Sun Weidong told a briefing on the epidemic there were no reports of infections among Indian citizens in China, and that the Chinese embassy has established a contact mechanism with India’s health ministry to maintain close communications.
“We hope the Indian side could review the epidemic situation in an objective, rational and calm manner, implement the consensus and instructions of the two leaders [President Xi Jinping and Prime Minister Narendra Modi], handle with China’s much-needed items in a humanitarian spirit, and resume normal personnel exchanges and trade between our two countries,” Sun said.
Analysts too said the length of the disruptions will be key. “The impact of Coronavirus on India’s economic growth and both trade challenges and opportunities depend on whether the threat of the virus would continue for some more time. Many of the inputs supplied from China, including for our pharmaceutical industry, are likely to be disrupted affecting supply of drugs within India and their exports,” said DK Srivastava, chief policy advisor, EY India.
“China also imports significant amount of raw materials for producing manufactured products within China. This demand for raw materials may also dry up quickly,” he added.
“It may be an appropriate time to provide relief for customs duties on goods that have been affected: for example, providing a cushion against the price hike for API imports in the pharmaceutical sector,” said Niraj Bagri, partner, Dhruva Advisors.