The recent outbreak of the coronavirus that emerged in Wuhan city of China brought forward the possibility of further economic slow down thereby increasing concerns about the global economy, apart from the severe impact on human lives. China has allocated more than $10 billion to contain the coronavirus. Many Chinese provinces have shut businesses for weeks now and it is not certain whether they will re-open anytime soon.
The growth rates due to this virus for numerous countries have been cut. S&P Global Ratings has cut China's 2020 growth forecast to 5 percent from 5.7 percent.
Nine out of the top 10 countries in Asia are vulnerable to the virus and they include India. Hong Kong, Singapore, Taiwan, Japan, South Korea, Thailand, Malaysia, and the Philippines.
Impact on India
The impact of the Coronavirus outbreak in China could be negative if the selective steps are not taken. India could turn this problem into an opportunity also with more exports and achieving a high growth rate. Let us discuss the negative and positive impact both briefly:
The impact of the Coronavirus outbreak in China could be negative if the selective steps are not taken. India could turn this problem into an opportunity also with more exports and achieving a high growth rate. Let us discuss the negative and positive impact both briefly:
Negative Impact on Indian Economy
India faces a series of challenges due to the coronavirus outbreak. Pharma companies, mobile handset, consumer electronics and automobile sectors in India may witness lower production due to clogged supply from China.
India faces a series of challenges due to the coronavirus outbreak. Pharma companies, mobile handset, consumer electronics and automobile sectors in India may witness lower production due to clogged supply from China.
Sunil Damania, CIO, MarketsMojo.com has outlined the possible risks and said "If the outbreak continues for longer than anticipated than risk will not be restricted to a few sectors, but it can hurt the overall Indian economy. The sectors that would be immune will be Banks, Insurance, IT as they will have fewer headwinds to face due to coronavirus."
So, there is a great danger that world economic growth could take a beating due to the virus as China accounts for 12 percent of the world's GDP growth rate. Besides, there could be an indirect impact on many outside Chinese producers who source their raw materials or components from China.
The coronavirus outbreak made RBI Governor Shaktikanta Das take note and suggest the need for a contingency plan to deal with the unfolding situation. According to Jimenez Modi of SAMCO Securities, “The overhang of Coronavirus will largely drive the mood of stocks in the short term. Investors are advised to wait and let the market settle down before allocating any meaningful savings to direct equities.”
It implies that if the global environment remains weak, commodity prices would fall, as is the case with the 20 percent drop in crude oil prices, which should benefit India. However, India is not immune to a global slowdown. UBS said reports of the virus contagion have contributed to investors' concerns during its marketing trip.
Positive Impact
Economists are of the opinion that the disruption caused by the virus in China could pave way for more foreign investments in emerging economies like India, Bangladesh, and Vietnam as the world looks to reduce dependency on China, the largest manufacturing hub in the world.
Economists are of the opinion that the disruption caused by the virus in China could pave way for more foreign investments in emerging economies like India, Bangladesh, and Vietnam as the world looks to reduce dependency on China, the largest manufacturing hub in the world.
Experts feel that India has a good chance of becoming an attractive manufacturing hub given the present situation, provided the government changes some of its trade policies to bring down commodity prices. An example of Vietnam, which has gained a huge growth boost due to the higher density of electronics manufacturing, is before everyone.
H Nemkumar, Head - Institutional Equities, IIFL, said that the ill-fated coronavirus outbreak in China has offered India with an opening to revive the 'Make in India' program.
According to the Chief Economic Advisor of India, Krishnamurthy Subramanian the coronavirus outbreak in China provides an opportunity for India to expand exports. India is one of China's leading trade partners in Asia and has a huge trade deficit with that country.
Sharing his views at IIM Calcutta, Subramanian said, “The coronavirus outbreak in China provides a good opportunity to India to expand trade and follow an export-driven model." He said that China imports a lot of components, parts, assemblies and integrates and then exports them.
"India has been following the same pattern in terms of mobile manufacturing in the country. So, if one looks from this perspective, it provides a good opportunity for India," said Subramanian.
A recent surge in order queries has been received by Indian traders across various domains. Trade analysts expect more investment opportunities for emerging economies in the backdrop of the coronavirus outbreak in China.
However, it now remains to be seen whether the government can ease policies and pitch India as a strong investment destination for major companies around the globe.
