The COVID-19 outbreak has wreaked havoc worldwide. With the advent of the epidemic, christened as Coronavirus, the problems have increased manifold in the past few weeks. Although almost the entire world is experiencing the undercurrents of the epidemic, its epicenter lies in Wuhan, China.
China has been hit the hardest and this has massively slowed down the economic growth of the country. With the world being wary of anything and everything regarding the Chinese product and with global safety measures on the rise, exports from China have seen a steep decline with no expected revival anytime soon.
A huge chunk of Indian imports is dependent on China. The Indian automotive supply is heavily contingent on our Chinese partners. And we don’t say that lightly. An estimated USD4.5 billion worth of auto-component imports was seen from China in 2018-19. A whopping 27 percent of the automotive parts are manufactured in China and imported to the Indian companies valued at, as we said, 4.5 billion. Even a minor blow to this relationship can lead to us paying a very heavy price as far as the growth of the industry is concerned.
The deadly outbreak has rendered the Chinese factories ineffectual, which in turn has brought the Indian automotive industry to a halt. According to the China Association of Automobile Manufacturers (CAAM), the impact on the industry is so severe that several automakers are facing a financial breakdown, causing a ripple effect on other automotive markets, including India. The manufacturing units have seen a complete shutdown and owing to this, the automotive components which the factories’ Indian counterparts are so heavily dependent on, are lost to us.
India imports a wide array of automotive parts, spanning various vehicle types from China. Crucial automotive parts like fuel injection pumps, EGR modules, electronic components, turbochargers, airbag components, etc are the key non-domestic commodities that can limit the further production of commercial vehicles, passenger vehicles, and two-wheelers, according to ICRA. Tractor companies are speculated to not be on the receiving end of this decline since its component production is inherently localized.
The solution, it seems, is to switch to alternate suppliers outside of China. This is, however turning out to be an impossible feat since the shift cannot be sudden and not effective immediately. And even if the shift is underway, the existing stock is relatively infinitesimal to boost sales in India, especially taking into consideration how India prepares to meet the BS6 standards.
This does serve as a wake-up call for the Indian automotive industry to formulate an action plan to acquire multiple vendors on a global scale, rather than limiting imports from one region entirely. Importing from other countries can be a step taken in the right direction, as can be launching a domesticized production system. This, though, remains a shot in the dark.
As the automakers have enough stock to last a month, the situation grows sinister. Though not in imminent danger, things can begin to change for the worse if the Coronavirus continues to plague the industry. Things could get problematic if the production doesn’t resume in China. Until it does, the Indian market can expect a worrisome dwindling of sales in the near future.
Watch Rajesh Menon, the GM of SIAM spoke about the impact of Coronavirus in the auto sector.