The novel coronavirus is a new strain of the virus that has been identified in humankind. The first case of the coronavirus emerged was reported in Wuhan, China on 31st Dec 2019 and has since lead to a large scale COVID-19 pandemic and spread to more than 70 other countries with over 8,00,000 cases and 40,000 deaths and still counting.
Coronavirus (CoV) is a large family of viruses that causing illness ranging broadly in severity. It ranges from the common cold, fever to more severe diseases like Middle East Respiratory Syndrome (MERS-CoV) and Severe Acute Respiratory Syndrome (SARS-CoV).
Along with all other serious problems related to the coronavirus, we can’t ignore the fact that outbreak of COVID-19 in China is expected to have a considerable impact on the global economy including economic slowdown, foreign trade, supply chain disruption, commodities, and logistics.
Impact of the Coronavirus in India…
To control the toll, the Indian govt has taken some severe steps towards it. Govt has decided a complete social and economic lockdown of India for the next 21 days, i.e, from 24 Mar to 14 Apr, to contain the spread of coronavirus. The Indian economy was already staggering under a falling demand, high unemployment, and decrement of industrial output and profits, all of which happening together for several quarters. Now the lockdown would severely impact the supply side of the economy, i.e, production and distribution of goods and services, except for the essential items that are exempt. Both production and distribution of non-essentials have come to a suspension. This impacts at least 55% of the economy for 21 days lockdown or about Rs 2 lakh crore. It may even be more due to previous partial lockdowns by various state governments. The impact of the move will spill over to FY21, which begins on April 1. Although India may not fall into a recession, unlike the eurozone, the US or Asia-Pacific major trade contacts with china, yet the effect on the GDP growth will be significant.
The quarterly GDP growth has been consistently falling since Q4 of FY18; from 8.1% in Q4 of FY18 to 4.7% in Q3 of FY20.
Major rating agency like Moody’s sharply slashed its previous projection for India’s GDP growth in FY20 from 5.3% to 2.5%. Crisil slashed its base case GDP growth forecast for India in FY21 from 5.7% to 5.2%. It warned that there are greater downside risks if the pandemic is not contained by April-June 2020, or if it spreads rapidly in India, affecting domestic consumption, and investment(source).
On Mar 26, Finance minister Nirmala Sitharaman announced a $23 billion package pointed at cushioning the panic. A day later, RBI and central banks also made a sharp interest rate cuts. CLSA reported pharmaceuticals, chemicals, and electronics businesses may face supply-chain problems and prices will rise by 10%. The report also tells that India could also be a recipient of positive flows since it appears to be the least-impacted market.
Let us take a look at the sector-wise impact on Indian industry:
Chemical Industry: China is a major supplier of Indigo that is required for denim. It was found that 20% of the production has been impacted due to the disruption in raw material supply.
Shipping Industry: Coronavirus outbreak has impacted the business of cargo transportation service providers. Per day per vessel has declined by more than 75-80% in dry bulk trade.
Auto Industry: Indian carmakers imports between 10-30% of auto parts from Chinese firms. It is expected to result in an 8-10% contraction of Indian auto manufacturing in 2020 if the threat of coronavirus stays longer.
Pharmaceuticals Industry: China is the world’s largest exporter of active pharmaceutical ingredient (APIs) and intermediates. Approx. 70% of India’s total API requirement is met by imports from China.
Textiles Industry: India exports around 20-25 million kg of cotton yarn a month to China. Due to the coronavirus outbreak, several industries in China have stopped operations. Cotton yarn prices have fallen by 3-4% in the domestic market.
IT Industry: The 3 weeks lockdown period adversely impacted the revenue and growth of Indian IT companies.
Tourism and Aviation: Due to the coronavirus outbreak, airlines and tourism services are suspended that will impact the tourism sector and revenue.
The Federation of Indian Chambers of Commerce and Industry (FICCI) said (that there was a strong hope of economic recovery in the last quarter of the current fiscal. However, the coronavirus epidemic has made the recovery extremely difficult in the near to medium term(source).
