Corona: In­dia’s im­ports at risk

Epi­demic has un­leashed a mas­sive dis­rup­tion of eco­nomic ac­tiv­ity as re­tail car sales falls by 22%

Hindustan Times (Jalandhar) - - FRONT PAGE - Vi­neet Sachdev let­[email protected]­dus­tan­

NEW DELHI : The coro­n­avirus Covid-19 out­break in China, which till Fri­day has sick­ened close to 65,000 people and led to the deaths of nearly 1,500 oth­ers, has dealt a mas­sive blow to the coun­try’s econ­omy – and its con­se­quences are likely to be felt in In­dia, an anal­y­sis of im­port and ex­port data shows. In China, re­tail car sales in Jan­uary fell by 22%, the worst drop seen till now.

NEW DELHI: As China con­tin­ues to reel un­der the im­pact of Coro­n­avirus — con­firmed cases are climb­ing to­wards 60,000, ac­cord­ing to Bloomberg — its econ­omy has taken a mas­sive hit.

Re­tail car sales fell 22% to 1.71 mil­lion units, the biggesteve­r drop for the month of Jan­uary, Bloomberg re­ported, adding that ac­cord­ing to the China Pas­sen­ger Car As­so­ci­a­tion, February sales could drop 30%.

The epi­demic has un­leashed a mas­sive dis­rup­tion of eco­nomic ac­tiv­ity. Hubei prov­ince, which ac­cord­ing to Bloomberg is equal to the size of Swe­den’s econ­omy, has been facing a shut­down for more than three weeks now. How will these de­vel­op­ments im­pact In­dia?

One way to look at it is to see the im­por­tance of China in In­dia’s for­eign trade.

China has been In­dia’s largest source of im­ports since 2004-05, shows data from the Cen­tre for Mon­i­tor­ing In­dian Econ­omy (CMIE) data­base.

In 2018-19, the lat­est pe­riod for which an­nual data is avail­able, it had a share of 13.7% in In­dia’s to­tal im­ports. Any ma­jor dis­rup­tion in the Chi­nese econ­omy can dis­rupt these im­ports and hence both pro­duc­tion pro­cesses and sup­ply of con­sumer goods in In­dia.

How­ever, the head­line num­bers do not tell us about the im­por­tance of Chi­nese im­ports in var­i­ous cat­e­gories of goods.

An anal­y­sis of the World Bank’s World In­te­grated Trade Solution (WITS) data­base pro­vides some in­sights into these. Chi­nese im­ports had an av­er­age share of al­most 40% in In­dia’s to­tal cap­i­tal goods im­ports, one­fifth of con­sumer goods im­ports; and 15% of in­ter­me­di­ate goods im­ports, ac­cord­ing to an anal­y­sis of im­port data from 2014 to 2018. This means that any ma­jor dis­rup­tion in pro­duc­tion in China will ad­versely im­pact in­vest­ment, sup­ply chains as well as man­u­fac­tur­ing and sup­ply of con­sumer goods.

This can lead to both short­term and long-term prob­lems in the econ­omy.

The Chi­nese econ­omy is also an important ex­port mar­ket for In­dia. CMIE data shows that China was In­dia’s third largest ex­port mar­ket, af­ter the US and the United Arab Emi­rates in 2018-19. In the case of ex­ports, raw ma­te­rial pro­duc­ers would be the worst hit if the Chi­nese econ­omy does not re­cover from the Coro­n­avirus dis­rup­tion soon.

A five-year av­er­age of In­dia’s ex­ports to China shows that China had a 10.03% share of to­tal raw ma­te­rial ex­ports from In­dia. Tim Ni­colle, Founder and CEO, Pri­maDol­lar, said: “Many busi­nesses will find ways to work re­motely or vir­tu­ally if they can – it is the man­u­fac­tur­ing en­ter­prises that re­quire large work­forces to be present in one lo­ca­tion that will be af­fected se­ri­ously.

So this means that In­dia will suf­fer – not just be­cause health care sys­tem might get over­loaded, but also be­cause ef­forts to con­tain the virus will be very dis­rup­tive.”

“Can this lead to a rise in prices? Yes, this is the most likely re­sult of in­ter­rup­tions in sup­ply. More­over, it will also lead to ris­ing in­ter­est rates be­cause the policy re­sponse to sup­ply-short­age in­fla­tion is to dampen de­mand. Again, let us hope we are wrong, but the data points so far sug­gest this is di­rec­tion of travel,” he added.

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