China is India’s second biggest trade partner behind the United States, supplying some critical raw materials and absorbing some of the country’s agricultural exports. China accounted for 13.7% of India’s total imports and 5.1% of India’s total exports in 2018-19, according to data from the ministry of commerce.

 

The novel Covid-19, has drastically affected the lives of many, not only within China, but also globally. While the human aspect of this outbreak is fundamental, one cannot ignore the cascading economic impact of the outbreak on the global markets and the Indian markets in particular.

 

The outbreak has paralyzed the supply chain, logistics and contingency plans of businesses globally. Several airlines have cancelled all flights operating to and from China and travel bans have been imposed by many countries impacting trade and mobility. Whilst, closed-off ports and delayed shipments from China are severely impacting trading partners, businesses in China are currently going through a testing period caused by the difficulties caused by the overwhelming volume of regulations published by all levels of administrative organs. Affected by lockdowns and quarantines, businesses in China are finding it difficult to resume production and meet the demands of its global trading partners. Many suppliers in China, are turning to the ‘force majeure’[1] clauses incorporated in their contracts to delay or even cancel their contractual obligations on the basis of a force majeure certificate issued by the China Council for the Promotion of International Trade.

 

India’s reliance on China is spread across many varied sectors. India’s pharma industry which is the 3rd largest in the world by volume, is heavily dependent on API’s (active pharma ingredient) from China. In the absence of supply of API’s from China, it will be difficult for Indian manufacturers to meet global demands. The $30 billion domestic smartphone market, currently the world’s second largest, may see major disruptions as it is heavily dependent on China for almost 80% of its manufacturing components, including displays and memory chips. India is blessed with an abundance of sunlight through-out the year, but it cannot be converted to grid electricity without solar cells and modules, almost 80% of which is imported from China. Several other sectors in India such as furniture, computers, cars, etc. which are dependent on China for products may be severely impacted. With a decline of imports from China, the manufacturing costs of many goods could rise. The outbreak comes at a difficult time for the Indian economy and could make the economic slowdown worse. Although, it may be a bit too early to define the exact impact, the situation has surely raised an alarm amongst Indian traders and manufacturers.

 

Even in these difficult times, the Indian Government is continually collaborating with the Chinese Government in its fight against the outbreak by providing medical supplies. In order to combat the economic impact of the outbreak, the Chinese Government is constantly developing reforms and policies to help businesses stabilize and continue operations such as, inter alia, tax and freight rebates, reduction in bank interest rates and reduction or exemption of rent during the epidemic period on commercial properties. While more clarity and transparency are required to understand the exact manner in which these regulations will work, we believe that such efforts will help businesses in China stabilize, resume operations and swiftly meet the demands of the global markets. In the meantime, it is our advice to our Indian counterparts to empathize with their Chinese counterparts, establish effective channels of communication to better understand their suppliers ability to perform contractual obligations, devise an effective crisis management plan to reduce the trickling effect of the outbreak on its business and operations and also devise a contingency plan in the event the outbreak lasts longer than expected.

 

We at D’ Andrea and Partners Legal Counsel, have a team of experts to help you understand better and manage the economic impact of this outbreak on your business. Do get in touch at info@dandreapartners.com for any questions or assistance.

[1] “Force Majeure” provisions in a contract are triggered upon the occurrence of an event which is outside a party’s reasonable control and which hinders a parties ability to fulfil its duties and obligations under a contract.