Domestic importers of key sectors such as pharmaceuticals, electronics, auto components, some capital goods and garments remained jittery as a Covid-induced lockdown in parts of China, India’s biggest supplier of intermediate goods, rekindled fears of potential disruptions in the availability of key raw materials and intermediate goods. In some sectors, particularly electronics, up to 25% of production could be affected in the short term, some said, warning that exports of various products would also be affected. The disruption could not have come at a worse time when India Inc’s input costs are already high and global supply chains remain tangled in the wake of the Russia-Ukraine conflict.

Other sources of supply cannot easily fill the void in the short term, and they are also more expensive.

China is India’s largest supplier of intermediate goods, worth about $30 billion a year, in critical sectors, according to an internal IIC assessment carried out just before the pandemic hit. In the current fiscal year, the value of those supplies has only increased from that level, senior industry executives said. In some segments, the reliance on Chinese supplies is too great to ignore its disruptive potential. For example, Beijing accounts for 65-70% of New Delhi’s total purchases of bulk drugs and intermediate drugs, worth around $4 billion. Likewise, it accounts for about 80-90% of India’s imports of mobile phone components. Out of India’s total merchandise imports of $76.6 billion from China between April and January this fiscal year, electronic components accounted for $8.8 billion.

Experts and companies FE spoke to said if the lockdown is extended to more Chinese cities than a few (such as Shenzhen and Shanghai) and enforced for a relatively long period, it could weigh on Indian production. in some segments that depend on imported inputs from China. Until then, companies can breathe a little, as most of them have stockpiled to meet short-term requirements. All eyes are on China’s upcoming review on March 22 of its lockdown measures for certain cities, some exporters said.

Vinnie Mehta, chief executive of the Automotive Component Manufacturers Association of India, said the lockdown in China “is definitely a concern for us”. “Also, whenever ports (in China) are affected, it delays customs clearances, and then container availability also becomes a very big challenge,” Mehta said. He added, however, that it is too early to have an accurate assessment of the potential disruption. “After the first pandemic wave, we learned lessons and there is a degree of resilience in the value chain,” he said.

Sudhir Goel, Commercial Director of Acer India, said, “Over the past two and a half weeks, we have been experiencing the impact as many component suppliers are based in Shenzhen. Before Shenzhen, there was a lockdown in Hong Kong. Typically, the supply chain moves from Shenzhen to Hong Kong and then to India. If Hong Kong is blocked, there will be a delay (in supplies) because trucks are not allowed to go from Shenzhen to Hong Kong.

Pankaj Mohindroo, President of the Indian Cellular and Electronics Association, said: “Shenzhen’s global electronics supply chain hub, under strict Covid restrictions, is bad news for the industry. This can potentially cause severe disruption, including the extinction of 20-25% of the available domestic market. »

George Paul, chief executive of hardware organization MAIT, said: “This is a matter of concern and we need to follow its development closely.”

Indian Drug Manufacturers Association (IDMA) National Chairman Viranchi Shah said: “So far, we have not seen any significant impact as Covid cases are mostly reported in Shenzhen, which has no significant impact. is not a major manufacturing area for active pharmaceutical ingredients (APIs). ). However, if the pandemic is not contained and spreads to other regions, we will see an impact.

Rubal Jain, managing director of Safeexpress, said that although all smartphones sold in India are assembled locally, handset makers still depend on imports from Shenzhen for various vital components.

“Besides electronic components, India’s major imports from China are telecommunications instruments, computer hardware, chemicals and pharmaceutical raw materials. About 70% of India’s API needs are met through China. Therefore, business-to-business transactions between Chinese and Indian companies may be affected in these industries,” Jain added.

Nevertheless, some pharmaceutical companies are concerned that the lockdown will cause API prices to rise further and eat into their margins. Already, prices of important raw materials like tetrahydrofuran have soared from 250 rupees per kg to 750 rupees per kg in the past six months, said Kamlesh Udani, former chairman of IDMA-Gujarat.

Ajay Sahai, managing director and managing director of exporters’ umbrella organization FIEO, said most Indian companies have the necessary stocks to absorb short-term shocks. But if Chinese supplies are interrupted for a longer period, Indian companies could feel the effects.

Raja M Shanmugham, chairman of the Tirupur Exporters Association, said all eyes were now on China’s review of lockdown measures in key towns. “In the clothing sector, many accessories are imported from China, which will now be in short supply,” he added.

(With contributions from Nayan Dave in Ahmedabad)