Coronavirus lockdown: as India bleeds billions in losses, some exporters eye edge over China

By Kunal Purohit

Published: 8:30pm, 6 April, 2020

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  • With industries shut during the lockdown, job losses could push about 176 million people who earn below US$1.90 a day further into poverty

  • But despite the grim outlook, some exporters say there’s an opportunity for India as rival China reels from the disruption of global supply chains

An Indian fruit seller waits for customers at his shop in Mumbai on April 3, 2020. Photo: EPA-EFE

Rahul Bais, the founder of an NGO that works with the rural poor in Central India’s Maharashtra state, has been inundated with queries from anxious cotton farmers over the past two weeks.

About one-fifth of all cotton grown in India comes from the state, but farmers are in a dilemma.

“When they harvested it in January, the rates were too low, barely matching the costs they had incurred. So, they decided to wait,” Bais said.

But as India’s coronavirus infections spike and a three-week lockdown was announced with just a few hours’ notice on March 25 – leaving some 120 million impoverished migrant workers struggling to return to their villages – most farmers have lost hope of making any income.

Across the country, farmers have reported not being able to get produce to consumers because the lockdown has upended supply chains. Indian farmers interviewed by Reuters said they were feeding strawberries and lettuce to cows and buffaloes because there was no longer any demand for their wares in nearby Mumbai, with tourists gone and restaurants closed.

A Punjab grain merchant told Reuters there were no migrant workers left to fill sacks and bring the produce to market. India, the world’s top rice exporter, has already stopped exports due to labour shortages and logistics issues.

As analysts predict a global recession, India, one of the fastest-growing economies, is preparing to weather heavy job losses and support the industries hardest hit by the lockdown and ban on tourists, including the tourism and hospitality sectors.

About 80 per cent of India’s 470 million-strong labour force – or about 380 million people – are in informal employment.

The country has recorded 4,067 cases and 109 deaths, but this is expected to rise given poor health care in rural areas and groups living in cramped shanty settlements in large cities.

What makes the prospect of the recession in India alarming is the sheer scale – job losses that could push an estimated 176 million people, who earn less than US$1.90 a day, further into poverty.

A municipal employee in Lucknow sprays disinfectant on migrant workers on March 30, 2020, before they return to their villages amid a nationwide lockdown. Photo: Reuters

A billion cuts -

Forecasters have slashed India’s growth forecast, from a high of 5.6 per cent to as low as 2 per cent, amid the lockdown. India’s indexes slumped by over 30 per cent in the quarter ending in March – an 11-year low – after foreign investors registered a record sell-off. Estimates say India’s automobile industry is bleeding losses of over US$300 million for each day of closure. A snap poll of some 200 chief executive officers (CEOs) revealed that a majority feared job losses and deep cuts in profits.

Many industries have a bleak outlook. India’s dominant services sector – which contributes some 60 per cent to the country’s economy – contracted in March, as new business and export demand plummeted. The Confederation of Indian Industries (CII), an industry not-for-profit business association, predicted in a report that more than 20 million jobs could be lost. The US$23-billion hotel industry could suffer losses of between US$6 billion to US$14.7 billion, it added.

The textile industry, a source of major exports and employment for India, is also in dire straits. “The overall domestic and export demand has collapsed,” said the CII’s report. “Brands have put all orders on hold for the foreseeable future. This could lead to an 80 per cent demand destruction over the next 30 to 45 days and a continued impact for the remainder of the quarter.”

Workers sew clothes at a textile factory in India on February 14, 2020. Photo: AFP

Praveen Khandelwal, the general secretary of the Confederation of All India Traders (CAIT), a body representing 70 million traders, estimated that the retail trade had lost some US$30 billion over the last two weeks. Traders could die a “natural death”, he said, if the government did not offer a stimulus.

Dipa Sinha, assistant professor of economics at the Dr BR Ambedkar University in New Delhi, believes that migrant workers who keep the economy running could be a factor that determines how soon industries can recover once the outbreak is curtailed.

However, Sinha said rural workers might not want to return to the cities without confidence. “The economy is not like a switch that can be turned on or off. With such heavy economic losses on the anvil, unless they are certain that they will get jobs that help them pay heavy city rents, migrant workers might not want to come back soon,” he said. 

Even as things look grim, some insist that the impending economic slump could offer India an opportunity to make its mark on global trade, and even go one-up on rival China.

Latest data reveals that the economic fallout from the pandemic has already started affecting Chinese manufacturing, with nearly half a million Chinese factories closing permanently in the first quarter. Exporters, already reeling under the disruption of global supply chains, are eyeing the space they believe China might concede in global trade.“

 

We believe that for at least two to three years, China’s agricultural exports will be hit hard because people will be extremely cautious to buy these products from China,” said Ajay Sahai, director general of the Federation of Indian Export Organisations. “So, India has huge prospects in the medium to long term to replace China in some of these markets.”

Sahai said the economic impact arising from the pandemic could make nations rethink their dependence on Chinese imports.

“We believe that now, the China+1 or even China+2 policy will be prevalent across the world,” he said, referring to the strategy that countries, earlier entirely dependent on Chinese exports, will take in ensuring one or two alternative sources of imports.

Sahai believes that with nations looking to diversify their sources of imports, India stands a good chance of filling in the void, if it can step up to it. “Even in India, we are now looking at not just alternatives to Chinese imports globally, but also trying to develop some of these strategic imports domestically.”

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