Domestic importers across key sectors like pharmaceuticals, electronics, auto components, select capital goods and garments remained on edge, as a Covid-induced lockdown in parts of China, India’s biggest supplier of intermediate goods, has revived fears of potential disruptions in the availability of key raw materials and intermediate goods. In some sectors, especially electronics, up to 25% of production could get hit in the short term, some of them said, cautioning that exports of various products, too, will be adversely impacted. The disruption couldn’t have come at a worse time when India Inc’s input costs are already elevated and global supply chains remain tangled in the aftermath of the Russia-Ukraine conflict.

Alternative sources of supplies can’t fill in the gap easily in the short term, and they are more expensive as well.

China has been India’s biggest supplier of intermediate goods, worth about $30 billion annually, across critical sectors, according to an internal assessment of the CII made just before the pandemic struck. In the current fiscal, the value of these supplies has only surged from that level, senior industry executives said. In certain segements, the reliance on Chinese supplies is too big to discount its disruptive potential. For instance, Beijing accounts for 65-70% of New Delhi’s total purchases of bulk drugs and drug intermediates worth about $4 billion. Similarly, it makes up for about 80-90% of India’s imports of mobile phone components. Of India’s total merchandise imports of $76.6 billion from China between April and January of the current fiscal, electronic components made up $8.8 billion.

Experts and companies that FE spoke to said if the lockdown gets extended to more Chinese cities than a select few (like Shenzhen and Shanghai) and applied for a relatively long period, it could weigh down India’s production in select segments that rely on imported inputs from China. Until then, companies can somewhat breathe easy, as most of them have piled up stocks to cater for short-term exigencies. All eyes are on China’s upcoming review on March 22 of its lockdown measures for select cities, some exporters said.

Vinnie Mehta, director general of the Automotive Component Manufacturers Association of India, said the lockdown in China “is definitely a matter of concern for us”. “Also, whenever ports (in China) are impacted, it delays clearances and then the availability of containers, too, becomes a very big challenge,” Mehta said. He, however, added that it’s too early to have a precise assessment of the potential disruption. “After the first pandemic wave, we have learnt some lessons and there is some degree of resilience in the value chain,” he said.

Sudhir Goel, chief business officer at Acer India, said, “For the last two-and-a-half weeks, we have been facing the impact because a lot of component suppliers are based out of 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 under lockdown, there will be a delay (in supplies) because trucks are not allowed to go from Shenzhen to Hong Kong.”

Pankaj Mohindroo, chairman of the Indian Cellular and Electronics Association, said: “The global electronics supply chain hub of Shenzhen being under stringent Covid restrictions is bad news for the industry. This can potentially cause serious disruptions, including extinguishing 20-25% of the available domestic market.”

George Paul, chief executive of IT hardware body MAIT, said, “It’s an area of concern and we have to watch the development closely”.

Indian Drug Manufacturers’ Association (IDMA) national president Viranchi Shah said, “As of now, we haven’t seen any considerable impact, as Covid cases are mostly reported from Shenzhen, which is not a major manufacturing area for Active Pharmaceutical Ingredients (APIs). However, if the pandemic is not contained and it spreads to other areas, we would see an impact.”

Rubal Jain, managing director at Safexpress, said although all smartphones that are sold in India are assembled locally, handset manufacturers still rely on imports from Shenzhen for various vital components.

“Apart from electronic components, India’s top imports from China are telecom instruments, computer hardware, chemicals and pharmaceutical raw materials. About 70% of India’s API requirement is met through China. Therefore, the business-to-business transactions between Chinese and Indian companies may be impacted in these industries,” Jain added.

Nevertheless, some pharmaceutical companies fear that the lockdown will cause a further rise in prices of APIs and dent their margins. Already, prices of important raw materials like tetrahydrofuran have skyrocketed from Rs 250 per kg to as high as Rs 750 per kg in the past six months, said Kamlesh Udani, past-chairman of IDMA-Gujarat.

Ajay Sahai, director general and chief executive at apex exporters’ body FIEO, said most Indian firms have the required inventory to absorb short-term shock. But if the Chinese supplies get disrupted for a longer period, corporate India may feel the pinch.

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

(With inputs from Nayan Dave in Ahmedabad)