Sitharaman may take contingency measures to counter coronavirus impact

The government may announce a contingency measure soon after assessing impact of the novel coronavirus (COVID-19) epidemic on the Indian economy, two government officials said.

Finance minister Nirmala Sitharaman is meeting industry representatives and other stakeholders on Tuesday afternoon to assess the situation, they said requesting anonymity.

“To assess impact of #CoronavirusOutbreak on Indian Trade & industry, FM Smt. @nsitharamanwould be meeting Industry & Trade Associations today, 18th Feb, at 2 pm, New Delhi. Secretaries of MoF will also attend,” the finance ministry tweeted.

The meeting is convened after the industry expressed apprehensions that the outbreak of the disease in China would also damage the Indian economy, which is struggling to boost consumption and accelerate the economic growth. According to the Central Statistical Office’ (CSO) first advanced estimates, India’s GDP is expected to grow at 5% in 2019-20, a ten year low.

The Confederation of Indian Industry (CII) said in a report said that India as well as other countries require to have strategies for “minimising risks and managing the situation”.

“China is facing a quarantine-like situation with movement of goods and people to and from the country facing a lockdown. While the situation for human impact is very serious, the economic impact will cascade into loss of employment, markets, and small enterprises,” it said.

It proposed a three-pronged strategy. On the import side, it proposed minimizing risks to key sectors arising from supply chain disruptions. It also suggested leveraging opportunities to be an alternative destination of exports and keep supply chains running and leverage excess capacity to protect the domestic industry.

“The over dependence on China for finished products, spare parts and raw material will cripple the trade and small Industries in India, if preventive steps are not taken by the government to carve out alternate measures and bringing out an immediate policy to empower domestic trade and industry to maintain the supply chain,” the Confederation of All India Traders (CAIT) said in a statement.

The recently release official trade data reflected the impact of the epidemic on both exports and imports. India’s merchandise exports in January 2020 fell by 1.66% in January to $25.97 billion and imports dropped by 0.75% ($41.14 billion) on an annual basis amidst rising fear of global trade disruptions due to the spread of the coronavirus.

Commenting on the decline in exports, the Federation of Indian Export Organisations (FIEO) president, Sharad Kumar Saraf said, “global and domestic factors” have pulled down the monthly exports.

“Besides protectionism and liquidity concerns coupled with sudden spread of Novel Coronavirus in the world’s second largest economy, China, has further worsened the global sentiment and exporters are delaying their shipments,” he said.

Quoting the managing director of the International Monetary Fund, Kristalina Georgieva on Sunday, AFP reported that the coronavirus epidemic could hurt global economic growth this year. “There may be a cut that we are still hoping would be in the 0.1-0.2 percentage space,” she had told the Global Women’s Forum in Dubai. IMF, in its January update to the World Economic Outlook, had lowered global economic growth forecast in 2020 by a 0.1 percentage point to 3.3%, following a growth of 2.9% previous year, which was the lowest in a decade.

The CII report said, “The outbreak of Covid-19 in China is expected to have significant global economic impact.”

“China’s GDP is expected to decelerate by 1-1.25 percentage point over 2020 due to halting of economic activities in key production centres. As of 14th February, 48 cities and 4 provinces are in lockdown mode. This will have knock-on impact on global economic growth as China accounts for 19.71% of global GDP at purchasing power parity. It is estimated that global GDP will suffer

an impact of -0.5%,” it said.

According to domestic retailers India may face supply crunch due to shutdown of several Chinese factories. “The scarcity of goods may also result into inflation in prices,” CAIT said. According to latest official data released on February 12 by the National Statistical Office (NSO) India’s retail inflation, which is measured by the Consumer Price Index (CPI), increased to 7.59% in January 2020, a 65-month high.

China supplies items such as toys, furniture, hardware, footwear, fabric, consumable goods, gift articles, watches, mobiles and mobile accessories, electronic goods, electrical products, medical and surgical equipments, surgical goods, pharmaceuticals, iron, steel, engineering goods, chemicals, construction instruments, kitchen equipments, auto spare parts, paper, stationary items, fertilisers, plastic and plastic products, fancy decorative items, cosmetics, computers and computer accessories, solar panels, and bamboo sticks for making ‘agarbatti’.