Expert Commentary Local Supply Chains Provide Advantage for India

The spread of the coronavirus and the slowdown of the economy are causing problems for India. Many other countries are also affected by these developments, but the high dependence on domestic markets could give India an advantage.

Both India and the rest of the world are currently facing two challenges: Covid-19 and economic slowdown. The Indian economy is undergoing a sharp slowdown, which was already evident in the last quarters before the crisis. In the third quarter of the current fiscal year, the economy grew at a rate of 4.7 %, a low rate for six years. The Indian economy is present facing some challenging times on account of budget deficit.

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I personally believe that India will do better than other countries because of its high dependence on domestic markets. Economists predict a decline in Indian economic growth of almost 0.7-1 % due to the coronavirus or the Covid-19 outbreak. Indian GDP is expected to slow to 4-4.5 % in 2021. Data from China indicate that the virus has led to a 20 % decline in GDP in the first two months of 2020; other countries that are forced into aggressive social distancing are likely to experience similar effects.

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The supply-side impact of factory closures has delayed the delivery of goods from China, affecting a large number of manufacturing sectors that source their intermediate and final product requirements from China. Some sectors, such as the automotive, pharmaceutical, electronics and chemical industries, were severely affected. Supplies of automotive parts were interrupted. China accounts for 27 % of India's auto parts imports, and in the case of the electric vehicle segment the share is two to three times as high. Deliveries by sea have been suspended and therefore Indian OEMs are unable to produce beyond their existing stock. As Italy, Germany and the USA are also affected, exports from India to these countries will also have a huge impact on Indian suppliers.

However the positive impact is that it has prompted companies to look inwards and source more parts locally, which has boosted the local auto component industry. Suppliers world over will also now look at India with renewed interest as a manufacturing hub.

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