India Inc sees a silver lining amid supply disruption over coronavirus3 min read . Updated: 14 Feb 2020, 12:31 AM IST
- India’s electronics industry imported about $20.6 billion worth of items from China in 2018-19
- Automobile and auto component makers said they are examining options
Indian businesses see potential benefits over the longer term from the novel coronavirus epidemic as companies focus more on local sourcing to offset supply disruptions in the future.
India, along with countries such as Malaysia, Indonesia and Vietnam, could emerge as alternative supply destinations for multinational companies, said industry executives.
In India, the coronavirus outbreak has disrupted the supply chain network, with China being a supplier of critical inputs to various industries such as pharmaceuticals, information technology and automotive.
Most factories in China that were expected to resume work by mid-February post a Lunar New Year holiday have deferred their reopening, while those that have reopened are operating at a fraction of their capacities, said Vinod Sharma, chairman of the Confederation of Indian Industry’s national committee on electronics. “I know that some companies in China have applied for permission to restart from their provincial governments, but have either not got permission or a clear indication of when they can restart," said Sharma. “Any restart beyond 17 February will impact our supply chain."
India’s electronics industry is heavily dependent on China, importing about $20.6 billion worth of electronic items in 2018-19, comprising one of the biggest chunk of the country’s imports.
Sharma, also the chairman of Deki Electronics, a maker of raw materials for electronic components such as plastic film capacitors, said nearly 70% of his business is dependent on Chinese supplies. While Sharma’s business will be hurt by delayed supplies from China, electronic product makers are likely to be worse off as they need many more inputs, he said.
Automobile and auto component makers said they are examining options. “We are checking alternative sources to supply parts to our customers in India," a senior executive at Bosch Ltd said, requesting anonymity. “Electronic parts that are lighter in weight can be airlifted but that would result in higher costs. However, we see that as a temporary solution."
In the longer run, the current disruptions in China, known as the factory to the world, would likely benefit emerging nations such as India and Vietnam as companies globally outsource more from such nations, according to industry executives.
“The stark side (of coronavirus) is also a blessing in disguise for India to uplift and enhance its manufacturing and industrial output to reduce external dependency," said Niranjan Hiranandani, president of lobby group Assocham. To promote this, the government has to develop a conducive environment and roll out tax benefits to spur production effectively, he said.
He said it was also an opportunity for Indian exporters to fulfil the “deprived demand needs of global counterparts".
Chief economic adviser Krishnamurthy Subramanian said “the extent of our participation in global value chain does not suggest that we may get impacted" by the coronavirus.
Rather than worry about the impact, experts said Indian industry must look to build and redraw business plans that can aid other countries as well.
“If we look at it, India is currently among the top 20 global devices markets and the fourth-largest in Asia, only next to Japan, China and South Korea. We are a possible alternative supplier for parts of optical, medical and surgical instruments, and this is where we can extend help," said Arun Singh, chief economist at Dun and Bradstreet.
Countries such as Kenya and Nigeria are highly dependent on Chinese imports, he added.
Vietnam, Indonesia and Malaysia are among others in the region that could emerge as alternative suppliers, the industry executives said. “Many of our vendors have factories in Thailand, Malaysia, Vietnam, etc. and they are ramping up production there to meet the shortage," said Rajesh Goenka, director, sales and marketing of Rashi Peripherals, among the country’s top three information technology importers.
Gireesh Chandra Prasad, Amit Panday and Nandita Mathur contributed to the story.