Industries in India brace for supply chain disruption by coronavirus

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Photo by Lenny Kuhne on Unsplash

By Atul Ranjan

NEW DELHI, NNA – Industries in India dependent on Chinese imports have warned of possible near-term production disruptions as global supply chains are hit by curbs to prevent the spread of the deadly coronavirus.

Several industries, especially automobile and consumer electronics, which rely heavily on direct supplies from China, are currently conducting supply chain risk assessment, according to industry officials.

A recent report by India-based rating agency CARE Ratings Ltd. said the reliance on imports from China by electronic, engineering and chemical sectors accounted for a high of 83 percent of supply imports in the last fiscal year.

“Non-availability of such products from China would mean that the related parties in India will have to scout for alternative market,” said CARE Ratings in its January 31 report.

It said about 50 to 60 percent of India’s demand for electronics goods is met by China. In the automobile sector, engine and electrical components are imported from China too.

In certain cases, Chinese auto component supplies account for over 70 percent of the total demand, according to another rating agency, India Ratings and Research Pvt. Ltd.

An empty Chinese exhibitor’s stand at the Auto Expo 2020 Components Show in New Delhi, on Feb. 7, 2020. Many Chinese exhibitors scheduled to attend the show are unable to travel to India due to curbs on the coronavirus in China. (NNA)

“The coronavirus epidemic is a serious concern for the industry. There's obviously a risk to the global supply chain affecting countries including India,” Deepak Jain, president, Automotive Component Manufacturers Association of India (ACMA), told NNA in an interview last Friday.

According to a top official from the Society of Indian Automobile Manufacturers (SIAM), an industry body representing vehicle makers, the coronavirus disruption, if prolonged, could hit automakers’ ongoing preparation to shift to the new emission standards to be implemented from April across the country.

“Some of the critical components related to BS VI technology are being sourced from China. Supply of such components might get impacted if the crisis continues,” said the official who declined to be named. Only BS VI-compliant vehicles will be allowed to be sold from April 1 in India.

MG Motor India Pvt. Ltd., a fully-owned subsidiary of China’s largest carmaker SAIC Motor Corp., which entered India last year, said it is likely to face supply disruption which could affect its production.

“This February is going to be a very challenging month,” Gaurav Gupta, chief commercial officer of MG Motor India, told NNA in an interview on Feb. 5 when discussing the severity of impact on production.

Gaurav Gupta, chief commercial officer of MG Motor India, at the Auto Expo in Greater Noida, near New Delhi, on Feb. 6, 2020, says the company is likely to face component supply disruption due to the coronavirus outbreak. (NNA)

However, the country’s consumer electronics sector including smartphones, seems to have escaped being hit for now. Pankaj Mohindroo, chairman of India Cellular and Electronics Association (ICEA) said there is no immediate impact as the industry had already stocked up parts supplied from China ahead of Chinese New Year holidays.

“But, this stock would last only till the second week of February. The mobile phone industry has a low inventory and China has been a major part of the supply chain,” he said in an emailed statement to NNA.

“The coming week is crucial for the industry, and if things do not get better in China and if the factories do not resume, then there will be an impact on the manufacturing of mobile phones and electronics in India as we are dependent on the Chinese supply chain ecosystem,” he added.

According to Mohindroo, Chinese imports account for over 50 percent of components used in televisions and almost 80 percent in smartphones in terms of value.

Anshika Jain, a research analyst at Counterpoint Technology Market Research, who tracks the smartphone market in India, said the impact could delay new launches.

“Additionally, the ban on travel will also impact new product planning and development as factories will not function properly,” she said in an emailed statement.

Rating agency India Ratings (Ind-Ra) said in its report on Feb. 11 that China serves not only as one of the largest importers of many commodities, but also as a transit hub for various supply chains in South and East Asia.

“In particular, the Chinese logistics sector is a critical player in the global consumer durables, electronics and capital goods industries,” it said.

“Ind-Ra believes if the outbreak continues to spread unabated, these supply chains could temporarily be decapitated, although major trading hubs and ports outside Hubei province are yet to be locked down,” it noted.

The report said China accounted for nearly 11 percent of global imports and 13 percent of global exports in 2018. It also serves as an import supplier of various raw materials and intermediate goods.