COVID-19 outbreak to hit global growth but will have limited impact on India: RBI Governor

Shaktikanta Das. File  

The COVID-19 outbreak will have a limited impact on India, but global GDP and trade will definitely be affected due to the large size of the Chinese economy, RBI Governor Shaktikanta Das has said.

Only a few sectors in India are likely to see disruptions and alternatives are being explored to overcome those issues, he said.

The deadly virus has brought a large part of China, the world’s second-largest economy, to a standstill and its impact has been felt across industries. India’s pharmaceutical and electronics manufacturing sectors are dependent on China for inputs and they may be impacted, Mr. Das told PTI in an interview here.

“It is definitely an issue which needs to be closely monitored by policymakers, whether in India or any other country. Every policymaker and monetary authority must keep a close watch,” he said.

A similar problem, perhaps on a lower scale, occurred last time during the outbreak of the Severe Acute Respiratory Syndrome (SARS) in 2003, he said, adding that the Chinese economy had slowed down by about 1% during that time.

At the time of the SARS outbreak, China was the sixth-largest economy and accounted for only 4.2% of the world’s GDP. The Asian giant is now the world’s second-largest economy, accounting for 16.3% of the global GDP. Therefore, any slowdown in the Chinese economy would impact the global economy, he said.

The RBI Governor said the COVID-19 outbreak appears to be larger than the SARS outbreak. Moreover, this time China’s share in the world GDP and world trade is much higher. “Hence, the virus outbreak will definitely have an impact on global GDP and global trade,” he said, adding that every major economy today will have to be very careful.

China is an important trading partner for India and policymakers, both in the government and various monetary authorities, are keeping an eye on the developments that are taking place, he said.

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“If the Chinese authorities are able to contain the problem, the impact on the global economy and on India will be minimised,” Mr. Das said.

On the impact on India, he said the pharmaceutical sector sources raw materials from China. “Most of the larger pharmaceutical companies, according to information that we have, always keep stock for three to four months. They should be able to manage. Also, those provinces from where these pharmaceutical intermediates are sourced have not been impacted by the virus outbreak. Therefore, there is an expectation that the supply of pharmaceutical raw materials will be maintained,” he said.

The electronics manufacturing sector in the country is also dependent on China for products including mobile handsets and TV sets. “There, again, it is important that our manufacturers are able to develop alternative places to source these raw materials”.

“I think there is evidence that our manufacturers are already discussing with other countries in the Asian region. If they are able to quickly access raw materials from these countries, then the problem for our manufacturers will also be contained,” he said.

He said the critical issue to be monitored now is how quickly Chinese authorities are able to contain the problem. For India, he said, the important point to be watched is how quickly manufacturers are able to access alternative sources.

India exports iron ore to China and this could be impacted, he said. “But in economics, something negative in one place always results in something positive elsewhere. So, if your iron ore exports are impacted, then perhaps the raw material supply to our local domestic steel manufacturers will be at reduced costs. Hence, their cost of production may go down.”

Mr. Das said the COVID-19 outbreak is an enormous human tragedy and the focus has to be on containing the virus.

China’s GDP has risen dramatically since the SARS outbreak in 2003. In 2002, China contributed 23% to the world GDP growth, while in 2019 China contributed an estimated 38% to world growth.

Meanwhile, the death toll from the COVID-19 epidemic in China has crossed the 2,000-mark as of Wednesday with the death of 136 more people, while the overall confirmed cases climbed to 74,185, authorities said.

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Printable version | Mar 6, 2021 9:13:18 PM |

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