Coronavirus brings more bad news for India’s beleaguered economy

The coronavirus outbreak, which has its epicentre in China’s Wuhan city, can impact some sectors of India’s embattled economy.

China is the country’s biggest trading partner, accounting for the largest share (14%) of Indian imports in financial year 2019. It is also the third-largest market for domestic goods, accounting for 5% of India’s exports last financial year.

“The disruption caused, if prolonged, could have a bearing on India’s imports from the country which is critical for domestic economic activity. Finding substitutes for imports from China in the near term could be a challenge,” noted credit agency CARE Ratings in a recent report. “Further, a slowdown in economic activity in China could impact exports from India.”

There have been three confirmed cases of coronavirus in the country so far, all in the southern state of Kerala. The state government, on Feb. 4, declared the fatal disease as a “state calamity.”

In China, the disease has claimed 563 lives, so far. Due to the panic, on Feb. 3, Chinese stock markets faced their worst sell-off in many years, wiping out nearly half a trillion dollars from the value of the country’s leading firms.

Impact on industries

The hit on the Chinese economy is bound to have a domino effect on a host of sectors in India.

• Tourism: In 2019, India’s total foreign tourist arrivals (FTA) stood at 10.9 million, of which Chinese travellers accounted for 3.12%. “Despite it being marginal, FTA share from China has been increasing for the past few years. Therefore the Indian tourism industry is expected to be negatively impacted during 2020,” CARE Ratings said in its report.
• Aviation: The sector which could be most impacted is Indian aviation. The outbreak has forced Indian carriers to the cancel and temporarily suspended flights operating from India to China and Hong Kong. Carriers such as Indigo and Air India have halted operations to China.

  
  

  Another domestic carrier SpiceJet is offering a waiver of cancellation/change fee for flights booked to China. “The temporary suspension of flights to China and Hong Kong can approximately lead to an Indian carrier missing out on gross revenue of Rs55-72 lakh per flight,” CARE stated.
• Bollywood: Due to the outbreak, China has closed nearly 70,000 theatres, according to reports. Recent years have witnessed many Bollywood movies, like Dangal and 3 Idiots, become massive hits in the country and the demand is only growing. Now, many scheduled releases will be impacted due to the fatal virus disease.
• Electronics: About 6-8% of India’s exports of electronic goods is to China. Also, around 50-60% of India’s demand for electronics is met by China, as per the CARE report. “In FY19, the share of imports of electronic goods from China declined to about 37% from the share of 57% a year ago,” it noted.  Based on the decreasing dependence in FY19, the report observed that the impact on the electronics good market will be “limited”.
• Auto and auto components: India’s automobile industry is already struggling with falling sales. Car sales fell 19% last year while sales of two-wheelers declined 14%, . Vehicle makers, including market leader Maruti Suzuki, import components and raw materials from China. However, Maruti’s chairman thinks this will not impact the sector. “It’s not a large amount,” , referring to the number of components Maruti and its vendors import from China. “Total imports are small, but the point is that for a car, even if one component is not there, I can’t put the car on the road.”The Care Ratings report also echoed Bhargava’s opinions. “India’s exports of transport equipment to China account for a negligible share of about 0.5% of the total transport equipment exported from the country,” it said.Besides, the coronavirus outbreak has hit the ongoing Auto Expo 2020 in Delhi. The Indian government had issued an advisory temporarily suspending e-visa facility for Chinese travellers and foreigners, following which, to let their Indian representatives man the stalls at the auto expo.

“With local production being affected (due to the coronavirus outbreak), there could be an increase in China’s imports from other countries which can provide an opportunity for Indian manufacturers,” the CARE report observed. India mainly exports chemicals, petroleum, agriculture, engineering goods, cotton yarn and plastics to China.

However, substituting imports from China can be tricky. India largely sources electronics, engineering goods, and chemicals from China. “Non-availability of such products from China would mean related parties in India will have to scout for alternative markets which can mean higher costs,” the report added.