How Coronavirus Outbreak Could Shrink Indian Automotive Industry?

For the last December, China is tackling a fatal virus outbreak, Coronavirus, which was first reported from Wuhan, a city of China. Now the disease spread across several countries around the world. The outbreak has not only hurt people’s lives, but also industries shutdown. It has taken a heavy toll on the Chinese automobile industry by disrupting manufacturing units and dealerships to shutdown.

The effect of Coronavirus can also be seen in the Indian automotive industry as Fitch Solutions, a global market insights company, recently said that the vehicle production in India to shrink by 8.3 percent in 2020 with increasing risk of supply shortage due to China’s coronavirus outbreak, possibly hitting domestic output if the virus spreads in the country.

Automakers in China have stopped production to limit the congregation of people and lessen the exposure of its population to possible infection. According to the China Association of Automobile Manufacturers (CAAM), the impact on the industry is so severe as several automakers are facing a financial collapse in the first quarter sales. Alongside manufacturing and sales of automobiles, CAAM further said, the virus is also affecting the automobile component business in China.

This is likely to have a ripple impact on the Indian auto sector as several automakers in the country heavily rely on China for crucial automotive parts like electronic components, fuel injection pumps, turbo chargers, airbag components, and more.

Moreover, while China is one of India’s largest suppliers of automotive components, a slowdown in the supply of China-made components will lead to shortages in India and could also slowdown or stop production. Consequently, it is expected that vehicle production in India will contract by 8.3 percent for 2020, following an estimated contraction of 13.2 percent in 2019.

As per ICRA, the Coronavirus in China and other Asian countries could disrupt the automotive supply chain. India is one of the importers of automobile components as its 27 percent of auto components imports from China. So, delay in the supply of components can take a considerable toll on the Indian automobile sector particularly when the industry is preparing to meet BS-VI emission standards.

Cuts in Import Tax

With the prolonged effect of coronavirus, Indian business leaders are now calling for cuts in import duties on antibiotic drugs, mobile parts and other items to ease the fallout from the disease which has disrupted supplies from China, according to government and industry officials.

In a presentation by the Confederation of Indian Industries (CII), the outbreak of the virus in China has hit India’s manufacturing and exports of medicines, electronics, textile and chemicals as China is the biggest source of intermediate goods, worth US$30 billion a year. Moreover, the Finance Minister of India Nirmala Sitharaman said the government would announce measures in the coming days after discussing them with other ministries and the prime minister’s office.

Concerning this outbreak, auto industry body Society of Indian Automobile Manufacturers (SIAM) also said it will be amassing information and data from its members to understand if there could be disruptions, and to what extent, if there are any.