Covid-19 has contracted global economies in its wake. With no sign of abating any time soon, experts continue to analyze the role of individual countries and their contribution to the global market. China, holding a top spot in the world of trade, was headed for a series of clampdowns after the virus flared up in several parts of the country. Let’s examine how this affected India and the world at large, especially where the electronics sector was concerned.
IMPACT OF CLOSURES IN CHINA ON THE ELECTRONICS INDUSTRY IN INDIA
China’s zero tolerance policy towards Covid-19 saw the country impose curbs and lockdowns, especially of seaports and airports where cases surged. India sources 60-70% of the components used to make consumer electronics from China. For many countries including India, this has resulted in a series of disruptions in the trade cycle leaving the entire ecosystem of industries to enter crisis-control ahead of approaching festive seasons.
From the cost of raw materials increasing to a fall in overall production, output from manufacturers in the electronics industry dropped by 10-30%. Furthermore, the fall in supply of critical parts, namely semiconductors and television panels, has created a bottleneck for the production of smartphones and other consumer electronics. This has led to a potentially higher rise in prices of latest models that were due to enter the market this year.
On the other hand, closures of seaports and airports has resulted in an exponential rise in freight charges and logistic timelines, with shipping costs sometimes soaring 4-5 times since the beginning of the pandemic. From non-availability of vessels to quarantine rules and regulations, not only have shipping charges risen but companies have also had to incur additional costs of air-lifting products.
While these series of events negatively impacted most industries requiring machinery from China, what could a country like India gain from them?
A combination of the Covid-19 outbreaks and politics has dampened global trade ties between many countries and China. Companies and governments are steadily looking at alternatives to diversify supply chains by moving resources out of the world’s second-largest economy. In the process, the Indian government has been approached by numerous companies to shift manufacturing bases from China to India.
Some examples would be Samsung relocating its factory from China to NCR, Uttar Pradesh with an investment close to 650 million USD. This is the first high-technique project being set up by the company after its move from China. Similarly, Nokia moved its 5G equipment production to Sriperembudur, near Chennai late last year, while e-commerce giant Amazon announced its first device manufacturing line to start operations by late 2021. Sources state that India has also approached close to a 1000 US companies with incentives to shift production to the country as its National Policy on Electronics (2019) aims to achieve a significant growth potential in a short period of time.
A surge in demand for electronics alongside a boost to manufacturers by reducing dependence on China for crucial components could be promising to the future of the electronics industry in India. With an aim to increase India’s gross domestic product of 15% to 25% by 2022, the government looks keen to push through opportunities that diversify manufacturing and trade.
While operations are beginning to smoothen out gradually, there are lessons to be learnt from the effects of the pandemic on nations and their trading trends. Shifting dynamics, aggressive competition, and the need to reduce dependence and enhance self-reliance could take India and its industries a long way in the eyes of world trade.
Senior Business Analyst
PredictiVu Pvt Ltd