Coronavirus Pandemic Exposes Severe Supply Chain Dependencies on Chinese Materials across Critical Industries in India
This month, several Indian sectors including manufacturing, energy, and pharmaceuticals have been strained by their heavy dependency on Chinese raw materials and intermediate goods, which reportedly account for $30 billion in annual bilateral trade between the two countries. The severe supply chain disruptions is now driving Indian policymakers and industry experts to rethink their Chinese supply chain dependencies and take steps toward long-term diversification strategies for affected industries, through an emphasis on subsidizing indigenous production of materials and easing the regulatory environment for alternative import sources. The following are a few sector-specific implications of Chinse supply chain disruptions amid the coronavirus outbreak:
- Chemical Industry: India’s $163 billion chemical industry’s projected growth to $304 billion by 2025 is now disrupted by the severe strain from the COVID-19 crisis and limited access to Chinese raw materials, on which the industry is almost singularly dependent. Although industry experts have acknowledged that finding alternative sources to Chinese materials during the pandemic is near “impossible,” there is newfound impetus to diversify the sector’s imports away from China, once the situation abates. For example, the Indian Chemical Council is now urging the Indian government to take steps to allow for more flexible import registration policies that will allow the country’s chemical producers to seek out alternative foreign supplies to China, arguing that the sector is the “backbone” of India’s industrial and agricultural sustainability.
- Pharmaceuticals: Local media reports suggest that the COVID-19 pandemic has also revealed India’s “overdependence” on Chinese active pharmaceutical ingredients (APIs) – defined by the World Health Organization as drugs utilized to make finished pharmaceutical products. India has the third largest pharmaceutical industry in the world by volume and it imports approximately 70% of its APIs from China. The severe dependency prompted the Indian government to initiate a stockpiling of such ingredients prior to India’s 21-day lockdown and, still, a government stimulus has been announced to help the country’s domestic API industry.
- Solar: India’s emerging solar energy industry is facing a setback due to Chinese supply chain disruptions. The Indian industry sources approximately 80% of its solar cells and modules from Chinese vendors that have reported delays in production, quality checks, and product transfer due to China’s domestic COVID-19 crisis. Accordingly, India expects to see a rise in component prices, which could in turn jeopardize the scheduled completion of solar projects in the next two fiscal quarters. Approximately 2.3 GW of solar plants planned to be commissioned between June and August 2020 are now impacted by the Chinese supply chain dependency. The Confederation of Indian Industry (CII) is signaling India’s solar sector to rethink import strategies for its solar modules and will seek to encourage domestic production of needed equipment and alternative sourcing.