As of now, the impact of the COVID-19 coronavirus in terms of its disruption of supply chain and logistics has not been fully felt, as most sectors in India had a reasonable stock of materials due to the Chinese New Year holidays.
With disruptions in supply chain and logistics for over a month now, almost all sectors are seeing fast-depleting stocks, a situation likely to have a long-lasting impact on different sectors in India.
While Indian companies engaged in sectors such as retail trade, wholesale trade and transportation are expected to have foregone revenues, companies engaged in sectors such as construction and certain manufacturing segments will experience a pile up of their order books and have deferred growth.
ALSO READ: How do you survive coronavirus? Seattle woman shares her experience in viral post
The impact on Indian companies with suppliers and buyers in China will vary across sectors, depending on the respective import dependency on China, inventory level, capacity for import substitution and the search and information costs in alternate markets. The impact can range from severe to very severe if things do not stabilise on the virus front in the near future.
“Most interior finishing materials such as carpets, acoustic panels, ceiling tiles, fire alarm protection systems are all imported from China. The anticipated growth of corporates in most cities and the space take-up of close to 50 million square feet across India this year would lead to a huge slowdown, as most companies have built their business case based on new hiring and the presumption of space being ready in 2020. The delay in materials reaching the site would have a cascading effect in terms of clients deferring the space take up or hiring of resources and thereby pushing the landlords to offer more rent-free tenures which would impact cash flows of the landlords and in turn the banking and financial sector,” remarked Shrinivas Rao, CEO, APAC-Vestian Global Workplace Solutions.
Rao says that the overall disruption in the supply chain and logistics of COVID 19 on the construction industry is yet to be ascertained. “At this point in time, we anticipate that all sectors of the construction industry will have a marginal slowdown in terms of timelines (anywhere between 30 days for a fit-out of space to 6 months in construction projects). Having said that, if manufacturing doesn’t pick up within the next couple of weeks in China, the supply chain is bound to be affected. Construction industry is very heavily dependent on China for all equipment and materials and any delay will impact deliveries of the base buildings by the developers, and in turn, space is ready for occupancy by corporates for their operations. The next four weeks are extremely crucial, as it will determine the anticipated delays in supply chain management and the overall impact on the industry and the economy of India,” added Rao.
The data from Dun & Bradstreet shows that Indian companies with suppliers and buyers in China will vary across sectors depending on the respective import dependency on China, inventory level, capacity for import substitution, search and information costs in alternate markets etc. The data further observes that at least 220 Indian companies have legal linkages with around 350 companies in China. Of these 220 Indian companies, 58 are in the manufacturing sector, 40 percent are in the services sector and the remaining 2 per cent are in the construction sector. While companies engaged in sectors such as retail trade, wholesale trade and transportation are expected to have foregone revenues, companies engaged in sectors such as construction and certain manufacturing segments will experience a pile up of their order books and have a deferred growth.
“China and Hong Kong together constitute [up] to 9 per cent of India’s export basket and over 17 percent of India’s import basket. While some exporters may need to diversify into other markets to minimize their supply chain and cash flow disruptions, some exporters in sectors such as medical equipment may be able to increase their supply to China. China’s seaports are among the busiest in the world and account for one-sixth of all container vessel calls and one-fifth of all dry bulk (coal, ores, grains, etc.) vessel calls in the world. Restrictions on port calls, muted demand and industrial activity will have a bearing on the global shipping activity. However, in contrast India’s exposure in terms of the percentage of Chinese vessels docking at India ports and vice-versa, is limited,” observed Dr. Arun Singh, chief economist at Dun and Bradstreet India.
Similarly, experts such as Abhik Mitra, Managing Director, Spoton Logistics pointed out that in FY2018, India imported nearly 14 percent or $73 billion worth of capital goods, intermediate goods like electronic components, and finished goods from China. “The closure of China-based factories, ports and warehouses to incoming and outgoing ships and cargo aircraft will impact availability and prices of these products in the short term. In the long term, it is likely that many more vendors and Original Equipment Manufacturers (OEMs) should want to relocate at least part of their production base to India to de-risk their supply chains and benefit from a more diversified supply base.” said Mitra.
A report by Kotak Securities states that the coronavirus could result in a supply chain impact on automotive, consumer durables and certain non-durables sectors. The report says that the prolonged shutdown of manufacturing units in China will also limit the availability of key components for automobile OEMs as well as spare-parts in replacement markets, consumer durable companies (refrigerators, washing-machine, electrical appliances) and non-durables like adhesives, paints and the like.