Coronavirus outbreak could disrupt supply chains in mid-term: Ind-Ra

India Ratings and Research (Ind-Ra) on Tuesday said coronavirus outbreak could disrupt supply chains and impact credits in the medium term.

The ratings agency, however, said supply chains of Indian companies are unlikely to be materially affected in the near term if the outbreak remains contained in Hubei province.

On the other hand, if it spreads over the next three to four months, sectors like pharmaceuticals, textiles and automobiles could face supply disruptions for critical raw materials, Ind-Ra said in a statement.

"In case the virus is transmitted over the next three to four months, the extent of supply chain disruptions globally could be higher than that during the 2003 SARS outbreak," it said.

 

The quantum of impact on sectors would be contingent on the nature of business activity and the nature of linkages the rest of the world has with mainland China, Ind-Ra added.

Specific to Indian companies, the agency said it does "not expect the novel coronavirus (2019-nCoV) outbreak to materially affect Indian corporates' supply chains in the near term, provided it remains contained in the Hubei province".

Stating that several Indian industries have a significant direct dependence on supplies from China, Ind-Ra said pharmaceuticals, fertilisers, textiles and automobiles are among the sectors that could be affected.

"Some of these products (imported from China) such as antibiotics, activated pharmaceutical ingredients (APIs) and fertilizers are critical commodities and any disruption in the supply over the long term could have far-reaching economic consequences for India," it said.

It further said, "Textiles and automobiles could also face supply disruptions for critical raw materials. All this put together could further worsen the recovery in industrial production over the near to medium term. Nonetheless, such a disruption is not Ind-Ra's base case scenario."

On the possible impact on global supply chain, the ratings agency said China accounted for nearly 11 per cent of the global imports and 13 per cent of global exports in 2018.

"It also serves as an import supplier of various raw materials and intermediate goods. Thus, the supply chains for various global and Indian industries are linked to China," it said.

Ind-Ra further said, "In a situation wherein the outbreak continues for over two quarters, the impact on China's industrial activity could be substantial - both due to a fall in labour availability and consumption demand."

The agency also said although global response to the coronavirus outbreak has been more aggressive than the 2003 SARS outbreak, it is difficult to quantify the exact impact on Indian corporates, given the significant differences between the two outbreaks both in scale and severity.

"Today, the integration between China and rest of the world is significantly higher, the pace of information dissemination is faster and the containment efforts are more coordinated and aggressive, than at the time of the SARS outbreak," it said.

Since 2003, China has gained a dominant role in supply chains of various industries including pharmaceuticals, auto, electronic products and textiles, it added.