China’s Covid Surge And Indian Economy

The sudden withdrawal of the zero Covid policy by the government in China came as a surprise to many. After having imposed very strict conditions for containing the spread of Covid, restrictions have been eased quite a bit with mandatory quarantine in central facilities and large-scale testing being rolled back. 

Even as the implications of this move were being deliberated upon, several media reports surfaced that indicated a massive surge in infection rates in China with the health infrastructure coming under pressure. Reports further indicate that it is sub-lineages of the highly transmissible Omicron variant that are leading to this surge. 

While official numbers are not available, the sheer size of the impact has raised concerns globally with countries reviewing their state of preparedness lest they be hit by the next Covid wave.

Policymakers in India were swift in their response with the Prime Minister taking a review of the Covid situation and underlining the need to be in a state of readiness to deal with any eventuality. Stock-taking measures regarding the availability of medicines, oxygen, beds and mock drills being carried out at hospitals across the country are reassuring. 

The government has also redoubled its efforts to promote the uptake of booster shots, increase genome sequencing of Covid positive samples and has brought in the graded screening of international passengers coming into the country. 

Given the large-scale vaccination coverage in India and the measures being taken by the government, we are well prepared this time around to handle any health emergency. As individuals, it is important that we follow Covid appropriate behaviour and bring back the habit of wearing masks for everyone’s safety.

On the economic front, the world is already grappling with the impact of the Russia-Ukraine war. The surge in commodity prices, elevated levels of inflation and subsequent monetary policy tightening at scale by central banks have cast a shadow on the outlook for the global economy in 2023. Global GDP growth has been significantly downgraded and the current Covid situation in China is only going to intensify the pressure. 

Being the second largest economy in the world and having significant trade and investment linkages, developments in China matter a lot. According to epidemiologists, China could face three Covid waves between now and March 2023. This will have a bearing on business and commercial activities in the country. 

Already, China’s factories are seeing an activity level slump to the lowest levels in almost three years with the Covid disruption impacting supply and demand, staff attendance and logistics. The dislocation in the supply chains will have a ripple effect globally.

As for India’s direct economic engagement with China, we have significant trade exchanges that have grown with time. While precise assessments of Covid related disruption in China currently are not available, feedback from FICCI members shows that there is a high degree of uncertainty in the market. 

Our exports of engineering goods, petroleum products, marine products, metals, organic chemicals, cotton, tea, non-basmati rice etc. could see demand attenuate in the months ahead. On the import side, we depend on China for sourcing components and raw materials for sectors like automotive, pharmaceuticals, electronics, engineering goods etc. 

Our companies are continuously monitoring the situation for any abrupt stoppages – so far supplies have been on time and companies have also built inventories for a few months given the earlier experience. In case we have a situation where production gets impacted in China for a prolonged period, then we could face some challenges. It is therefore important that we continuously strive for alternate supply chains and build our own domestic capabilities to tide over disruptions.

With the Union Budget 2023-24 is on the anvil, we are sure that developments like the one we are seeing today will reinforce the commitment of the government to further fortify plans and policies with matching resources to promote domestic manufacturing capabilities.