Thursday

27


February , 2020
World bracing for Coronavirus Impact?
17:32 pm

Shaunak Roy


Leading health experts and scientific researchers from across the world are engaged in a relentless quest to explore diagnostic resolutions to the COVID 19 epidemic in China—the disease triggered by the neoteric coronavirus—that appears ominous enough to transmogrify into a worldwide pandemic.

Hong Kong’s chief epidemiologist, Chair Professor of Public Health Medicine at the Hong Kong University, Dr. Gabriel Matthew Leung, asserts that the mystical coronavirus epidemic, if not curbed timely and effectively, could mushroom across the world, thereby affecting nearly 67% of the global population. Each individual contaminated with the virus, would eventually disseminate the virus to around 2.5 other individuals, which would essentially present an alarming ‘attack rate’ of nearly 60-80% and a casualty rate of 1-2%.  Dr. Robert Redfield, the Director of the Centers for Disease Control and Prevention (CDC), opines that the virus would eventually be secured, resulting in a community-centric transmission, which would bring its status down to a sporadic influenza. Notwithstanding, the mysterious nature of the virus, coupled with its rampant proliferation is the major cause of apprehension. As of February 17, 2020, the National Health Commission of the People’s Republic of China reports that the death toll from the coronavirus outbreak in mainland China stands at 1,770, with over 48,000 people infected. One of the latest ‘martyrs’ of the coronavirus outbreak happens to be Dr. Li Wenliang, a Chinese ophthalmologist who, ironically, was one of the foremost whistle-blowers of the novel virus.

Affecting global economy

Labelled as the ‘Chernobyl’ of Asia, the outbreak of coronavirus across China has undeniably upended major world markets, impacting key industries, be it food and beverages, fashion and entertainment, travel and tourism, automobiles and technology or even iron ore and other base metals. Along with markets being displaced, the manufacturing sector and supply chains across several leading countries will face a ripple effect, especially since majority of them import heavily from China to execute their production processes. Consider the case of US-sportswear brand, Under Armour Inc., which estimates a plunge in revenues worth $50-60 million, from the relatively fast-expanding APAC region, as a direct consequence of the epidemic. In another recent report published by the International Civil Aviation Organization (ICAO), it was stated that the Chinese epidemic would have a detrimental impact on the global aviation industry, and shall account for revenue losses worth $4-5 billion, with the passenger capacity in Q1 of 2020 being slashed by around 2/5th (i.e. a loss of approximately 2 crore passengers). Further, Disney’s theme parks in China have indefinitely put up their shutters for over a couple of weeks, which would diminish the firm’s operating income by $175 million in Q2 of 2020. British automobile giant, Jaguar Land Rover has also been affected by the epidemic, as it cautioned against the disruption in supply of car parts from China in its inland factories. The company was also coerced to halt sales in China, one of its biggest markets. A multitude of other global automobile giants such as Tesla, Hyundai, Volkswagen, Nissan, have been compelled to cease production lines in their factories in China because of the virus. Recently, leading investment-banking major, HSBC has contemplated on shrinking costs by $4.5 billion by downsizing nearly 35,000 jobs until 2023, in light of the economic disruptions faced by the coronavirus outbreak and the ongoing political strife in Hong Kong. Tekmar, a market leader of subsea cables, umbilical and flexible pipe protection systems, has been dragooned to diminish its expectation of generating record revenues in 2020 due to the virus. Nearly 300 McDonald’s restaurants in China have closed shops, while Starbucks has closed more than 2000 stores across the nation. About 150 Capri stores in mainland China remain closed, while Apple has shut down all of its stores in the country owing to an “abundance of caution.” Although it is too early to establish the financial costs of the epidemic, these cases of temporary shutdown, along with numerous other similar cases, bear testimony to the adversities faced by Chinese corporates at present.

Sino-Indo bilateral trade

There is an uncanny lull across India’s corporate milieu, in the aftermath of the Coronavirus outbreak, even though there exists an absolute consciousness about the fact that the epidemic has the capacity to upset bilateral trade worth nearly $92.68 billion, a figure that was pegged by industry experts to touch the $100-billion mark by the end of 2020. Indo-Chinese bilateral trade had dropped by nearly $3 billion in 2019, with India continuing to maintain a staggeringly high trade deficit totalling $56.8 billion.

Despite India’s aggregate exports to the world declining by 2%, the volume of exports to China surged by 5.4%. Major commodities that are imported by India encompass electronic products, electrical paraphernalia, organic chemicals, plastics and fertilizers among other products. In other words, India’s growth saga in terms of smartphones, construction and renewable energy, may be attributable to thousands of Chinese wage-earners.

China exports finished products in exchange for the raw materials it imports from India. For instance, the virus epidemic is gradually proving to impinge on the market for drugs in India (pegged at Rs. 39 billion) by disrupting the imports of active pharmaceutical ingredients (API). Essentially, 70% of the fermentation-centric APIs are imported from China (worth $2.4 billion), in order to manufacture fundamental medicines such as paracetamol, metformin, ampicillin etc. In the travel and tourism sector, losses worth $500 million have been estimated by domestic tour operatives on account of revocations from Chinese as well as other international tourists and other countries. The massively profitable smartphone industry in India portrays a similar picture. Be it solar power parks, computers, toys or furniture, the detrimental impact of the coronavirus pandemic is clearly manifest across these sectors in India.

Making the best of adversity

In comparison to the deadlier SARS epidemic of 2002-03, India has not been affected immeasurably yet by the Coronavirus. At a recent seminar on ‘Wealth Creation’ at the Indian Institute of Management, Calcutta (IIM-C), Indian economist, Krishnamurthy Venkata Subramanian, who serves as the current Chief Economic Adviser to the Government of India, observed that there is a genuine window of opportunity for India to ameliorate its export situation. Presently, the manufacturing sector in India is striding on a high-growth track, as it is pegged to contribute nearly 25% share to the nation’s GDP by 2022 as well as generate around 10 crore new jobs in the manufacturing sector by 2025. According to the 2016 Global Manufacturing Competitiveness Index (GMCI) released by Deloitte, India is predicted to evolve as the fifth largest country across the world, in terms of its manufacturing, by the close of 2020. Yet, there exists multiple bottlenecks and intricacies that cripple the Indian manufacturing sector, which would make it tedious for it to immediately reap the benefits of the worldwide disruption in global trade. However, over the past few years, India has aspired to create a financially steady and self-sustaining industrial sector with its own viable revenue-generating model, thereby moderating its unwarranted reliance on Chinese manufacturing and assembling, albeit marginally. For instance, riding on the soaring market for power banks in the country, India has planned to launch a novel state-of-the-art design hub for power banks and other associated products in Noida, which have archetypally been manufactured in China. In reality, Chinese investments have furthered India’s grand design to upgrade the local network for manufacturing as well. A wave of opprobrium by a host of trader enterprises in the past few years have coerced several Chinese e-commerce corporations to Indianise their business processes and develop a more broad-minded and inclusive online market. For example, Hangzhou-headquartered e-commerce firm, Club Factory, which boasts of nearly five crore Indian consumers on its web-based platform, is contemplating on adding over 10,000 local sellers in India, enabling them to make over 20-30% cost savings when selling on the online platform, given that the company does not demand any commission from such sellers.

In fact, the time is ripe for the Indian government to turbocharge its ‘Make in India’ programme and endeavour to strategically position India on the world map as a noted manufacturing hub and bestow global appreciation to the Indian economy. Indeed, the Department for Promotion of Industry and Internal Trade (DPIIT) has been undertaking robust measures for effectively promoting ‘Made in India’ products. There has also been a fresh demand from corporate tycoons in India, warranting a cutback in import duties, especially for categories such as pharmaceutical drugs (antibiotics, vitamins etc.), mobile paraphernalia and other product elements (which is roughly worth Rs. 2.16 lakh crore annually), since supplies of raw materials from China have been interrupted tremendously. In a recent presentation to the Government of India in mid-February 2020, the Confederation of Indian Industries (CII) counselled that India should undertake measures to eliminate higher import duties on specific Chinese-reliant imported products, while offering ample short-term interim borrowing facilities in favour of domestic enterprises that are dexterous enough to commence production on an priority basis, so as to address the demand gaps in the Indian market.

Moreover, especially since foreign enterprises (besides China) are perpetually eyeing opportunities to branch out their bases of supply, by lessening their dependence on Chinese manufacturing, India presents itself as a lucrative alternative. Then again, the government must necessarily adopt direct measures to fine-tune some of its archaic trade policies and slash commodity prices. Lessons can be derived from Vietnam, which has often been dubbed by some global investors as the ‘next China’, in the light of its superior echelons of manufacturing density, as opposed to other alternate sourcing destinations, such as Bangladesh and Cambodia. Due to its production density, Vietnam has successfully arrested the attention of global investors from China especially for machinery and electronics.

India has advanced 14 notches to the 63rd rank (among 190 nations) in the Ease of Doing Business (EoDB) index released by the World Bank. Although the government’s goal of achieving the 50th place has not been fulfilled, India has already presented its fair share of opportunities to conduct business in the country, in terms of its noteworthy advances in digital connectivity, infrastructural expansion on top of escalating disposable incomes. In addition to a colossal market for consumer products, the time is also opportune for India to leverage its relatively lower costs of labour. For example, labour cost in India (on an hourly basis) is tantamount to approximately one-third of the same unit in China.

In a recent press release, Deepak Sood, the Secretary General of the Associated Chambers of Commerce and Industry of India (ASSOCHAM India), maintained that there is no reason for Indian businesses to be lose their nerve on account of the ongoing epidemic crisis, and likened the situation to an economic ‘cushion’, suggesting that there exists a regular perimeter to which the economy may fall, before it bounces back for good yet again. Indian firms must rise to the occasion and leverage the surge in production opportunities available in the country. The NITI Aayog conducted a meeting with leading professionals in the pharmaceutical sector to confer about the impact of supply disruptions in the case of APIs in the aftermath of the Coronavirus outbreak in China. A series of upbeat policies and measures designed to augment domestic manufacturing of APIs and make India globally competitive, were mulled over, so as to axe down excessive reliance on Chinese imports.

Although the banking and insurance sector as well as the IT sector may remain insusceptible to the virus outbreak, India Inc. would by and large, be adversely exposed to the negative economic ramifications if the epidemic is not contained in the course of the upcoming few months. It is commendable that the government has clarified that in such events, the companies can invoke clauses like force majeure and protect themselves against any contractual lapses, if any, should a situation so demand. This is the time for India Inc. to step to the plate and turn a crisis into an opportunity for growth.

  Assistant Professor of Management Studies at St. Xavier's College (Autonomous), Kolkata.

[The views expressed here are personal and don’t reflect those of the government]

 

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