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ANALYSIS

Coronavirus has hit business hard but negligible impact on agriculture
Saturday, 07 March, 2020, 08 : 00 AM [IST]
Our Bureau, Mumbai
The deadly coronavirus Covid-19 epidemic is taking lives and has now become a global emergency. Epicentre China, especially the province of Hubei and eastern parts, are worst hit. Key industries here are coming to a grinding halt. With the weather getting warmer over the next two months, we expect the impact of the outbreak to subside in China by April 2020. That is the base case. In the worst case, the epidemic might well extend through the first quarter of fiscal 2021, intensifying the severity of impact. If not contained quickly, the epidemic will have a knock-on effect in the world economy and disrupt global supply chains. China is the world’s second-largest economy and a major trade partner for many countries, including India.

CRISIL tries to assess the extent of economic casualty of the outbreak, especially for India, as things stand. In the base case, CRISIL believes the impact for India will be a mixed bag.

The outright bad: For Indian importers, supply disruptions in key segments is the biggest threat. On the other side, exports to China are taking a hit, too. Export-import trade between India and China (including Hong Kong) was $115 billion in calendar year 2019.

Some factories in Hubei province have reopened post-Chinese New Year but these units are yet to scale up to their full potential due to labour shortage. Shipping and air transport operations to many Chinese cities remain suspended from and to India, or are operating with low frequency. That’s delaying shipments between the countries.

Consumer durables, electronics, solar panels would be most hit, as these heavily depend on imports from China, with no immediate alternatives available.

Besides, some impact on exporters of products such as cotton yarn, seafood, petrochemicals, gems and jewellery is inevitable, given that China is among the biggest markets for these products.

China, including Hong Kong, had a trade surplus of $301 billion according to latest available data (calendar 2018). It accounted for 16% of global exports.

India had a trade deficit of $159 billion as of calendar 2019. It remains a net importer from China (including Hong Kong) of $56 billion. Key commodities imported on the India-China trade lane include electronics, consumer durables, auto components and pharma bulk drugs intermediaries.

The top four regions – the Middle-East, China, the European Union (EU) and the United States (US) – consume over 60% of India’s merchandise imports as well as exports.

Over the past three years, India’s overall merchandise imports logged a compound annual growth rate (CAGR) of 12%. In comparison, merchandise imports to China grew 6%. Similarly, India’s overall merchandise exports grew 9% CAGR. In comparison, merchandise exports to China grew by 7%.

Negligible impact for agriculture
India imports 50% of its raw material (technical) pesticides requirement from China. For crop year 2019-20, most of the procurement has already taken place by November-December. In case of fertilisers, while ~10% urea is imported from China, it is produced in the Middle-East and traded by China. Therefore, we do not see a significant impact of Covid-19 and shutting down of chemical plants, in the fourth quarter of this fiscal. However, if the outbreak is not contained beyond that, imports for the next season will be impacted. In case of crops such as soybean, India depends on China by way of export of soy meal. But since a large part of the commodity has been harvested and already sold, the virus outbreak is not expected to impact farmers much. Some downward pressure on margins of soy millers might be seen in the near term, though, due to lower soy meal exports.

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