India Inc takes steps to protect supply chain as Covid-19 rages in China

Keeps adequate inventory levels for now; onboards multiple vendors to mitigate risk

The surge in Covid-19 cases in China has raised concerns of a supply-chain disruption among Indian companies, many of whom import raw material and components from the neighbouring country.

Consider this: Between April and October 2022, imports from China grew nearly 18 per cent year on year to touch $60.27 billion, according to data from the Ministry of Commerce. The sectors in India that import heavily from China include pharmaceuticals, automobile components, textiles, engineering and electronic goods.

These sectors remain at risk, says G Chokkalingam, founder and managing director of Mumbai-based Equinomics Research, given their exposure to China.

"While companies have realised the importance of de-risking their business models over the last two years of the pandemic, the dependence on China in some sectors is still high. If the current crisis in China persists, it could hurt production going forward," he says.

Firms say they have adequate inventory levels for now, in the event of a supply-chain disruption. The pharma sector, for instance, which imports 60-70 per cent of its raw materials from China says it has three months' inventory in place.

Viranchi Shah, president, Indian Drug Manufacturers’ Association, said there were enough stocks of important active pharmaceutical ingredients (APIs) and medicines in the system. But some companies remain cautious.

"If the current situation persists, it could disrupt production. The Indian market may be impacted, especially in terms of drug prices, around January-February," an executive from a large Gujarat-based pharma company said.

"Players have created some inventories because of the festive season. So, there is availability of parts right now," said Vinnie Mehta, Director General, Automotive Component Manufacturers Association of India (ACMA). Experts say auto firms are holding around a month's inventory with them to ensure production isn't hampered in the event Covid-19 cases rise further in China.

A Financial Times report on Sunday said about 250 million people, or nearly 18 per cent of the total Chinese population, were infected with Covid-19 in the first 20 days of December. Almost 37 million people were infected in a single day, the report said, pointing to the rapid spread of the virus among people.

Some companies are simply not taking any chances as a result. Ajinkya Firodia, MD, Kinetic Engineering (KEL) said the firm wasn't dependent on China for its electric two-wheeler Luna, which will commence production shortly at Ahmednagar, Maharashtra. All the parts for the e-Luna have been developed locally, he said.

"But there is a huge market for electric three-wheelers in North India, where about 30,000 units are sold a month. This market is dominated by the unorganised sector, which sources about 80-90 per cent of its components from China. This segment could feel the heat of a disruption in Chinese production," Firodia says.

Several companies including Maruti Suzuki and some European automakers also undertake block closures of their plants (for maintenance purpose) during this time of the year. So, any impact on raw material supplies will not be felt immediately, Mehta of ACMA says.

Sourcing strategies have also changed over the past two years, as companies adopt a China-plus policy, say experts. Onboarding multiple vendors in different countries and moving to a 'Just-as-is' sourcing model from a 'Just-in-time' framework are some of the steps that auto companies have taken to mitigate risk, Mansi Lall, research analyst at Mumbai-based brokerage Prabhudas Lilladher, said.

Mahesh Babu, chief executive officer, India and chief operating officer of Switch Mobility, the EV start-up of Ashok Leyland, however, remains circumspect. He says finding alternate sources for semi-conductors, EV batteries and electronic parts isn't easy.

"The supply chain globally is so integrated that some parts or raw materials will come from China. All automobile companies, including us, have begun stocking critical parts. We are also in constant touch with our partners looking at the situation and trying our best so that there is no impact on us,” he says.

Babu's fears are shared by K Venkatachalam, chief advisor, Tamil Nadu Spinning Mills Association (Tasma). He says Indian spinning mills depend heavily on China for viscose staple fibre and viscose staple yarn. "If the crisis continues, it is likely to affect production in India," Venkatachalam explains.