Corona Crisis: How Will Indian Economy Survive?

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India is amongst the 15 most affected economies due to the Corona Virus outbreak and slow down in production in China. However, Corona Virus is likely to present both opportunities and challenges to Indian manufacturers.

Impact On India’s Trade With China

With China under lockdown, India has witnessed a major impact on imports and exports in various industries including pharmaceuticals, electronics, mobiles and auto parts.

China has been the biggest exporter to India, followed by the US, EU and UAE. In 2018, China exported goods worth $90.4 Billion to India. In 2017, telecom instruments, electronic components, computer hardware and peripherals, industry machinery for dairy and organic chemicals were the top items imported to India. The trade impact for India is less as compared to other economies such as EU, the US, Japan and South Korea.

Covid-19’s Adverse Impact On The Indian Pharmaceutical Industry

According to the Trade Promotion Council of India, approximately 85% of the APIs (active pharmaceutical ingredients) are imported from China. India’s over-dependence on China leads them to raw material supply disruption and price instability. Another major hindrance to the Indian pharmaceutical industry is its capacity utilization between 30-40% as against 75% of China.

Mankind Pharma and Granules India are airlifting APIs (active pharmaceuticals ingredients) and other input materials for their manufacturing due to limited land movements and shipping delays from China as inventories are drying up, reported in the Newspapers.

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Opportunities for Indian pharmaceutical manufacturers

Although the Wuhan Corona Virus outbreak could have a significant impact on the Indian pharmaceutical industry unless it is brought under control over the next few months, it also provides an opportunity to India’s pharmaceutical manufacturers to grab share from their Chinese competitors.

Indian pharmaceutical companies currently have two months stock of APIs and intermediates. In the absence of a major disruption due to the outbreak, the existing stocks may address the issue of shortage. The report from MCI, however, stated that improving the overall capacity utilization of existing manufacturing plants in India as a short-term solution to such supply disruptions. The report noted the need for assured purchase agreements from the government for the existing manufacturing plants.

Good News for Indian Manufacturers

India should definitely look into as an alternative manufacturing destination for global companies after the corona virus outbreak exposed how heavily they were dependent on China for raw materials and production.

But there is a lot that needs to be done. India needs to work on many issues such as taxation, regulatory mechanism, factor markets, financial sector and data privacy. Countries such as Indonesia and Vietnam would also try to grab the opportunity.

India being the second-largest producer of bulk drugs in the world is best to provide an alternative to China. However, this would require a lot of investment and a strategic plan for the coming years.

Meanwhile, Indian manufacturers have ramped up production of medical goods such as masks. This comes amid a worldwide shortage because of a surge in demand in China. Also, Indian textile companies are expected to be one of the biggest beneficiaries if they can ramp up production to seize the gap left by China.

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