A Global Pause

A Global Pause

While the impact of the coronavirus outbreak on business will play out over the next few quarters, the situation continues to look tough. China is a key source of components including air compressors for air conditioners and air coolers, motors for washing machines, and LED panels for televisions. For almost any appliance either the raw material or the component is brought from China.

Reports are now pouring in that manufacturing plants in Guangzhou and Shenzhen factories have partially resumed and are operating at 50–60 percent capacity. Complete production revival in China could take at least 40–50 days or more.

Industry response

Kamal Nandi

“The coronavirus attack had a negative impact on consumer durables sector due to its dependency on imports from China – be it for finished goods or components. A price increase of up to 3 percent for consumer durables, such as television sets, air conditioners, refrigerators, and microwave ovens, is anticipated from March 2020 onward, mainly because of the short supply of components and finished goods due to coronavirus outbreak, apart from the duty increase on certain components like compressors and motors, and in some cases on finished goods.

The industry is still under a grim situation as the larger part of the components used for ACE goods comes from China. Also, all the goods which fall under Quality Control Orders (QCO) have taken a hit as BIS inspectors are not able to visit China and other overseas countries for conducting factory visits and issue certification, which in turn is hampering the production lines in India.

The government has taken measures to minimize the risk for Indian manufacturers and airlifting of goods from China is one of the key initiatives, which the government has taken. But it may also be noted that this is an interim relief and will not resolve the greater issues.”

Dr Ashish Saurikhia
Coordinator – Policy and Research

“The harsh reality of Indian MSMEs dealing in electronics manufacturing is that the value-addition in electronics industry varies from 8 percent in EMS to approximately 50 percent in component manufacturing. Most of the inputs used for the manufacture of electronic items are sourced from China only. The low cost is an advantage with China and, hence, it has become the largest trading partner for the Indian electronics industry.

The EMS players used to source components from China, whereas the small component manufacturers source their inputs from China. This is a grave situation that sourcing from China has been impacted due to coronavirus epidemic.

Many companies in China have been locked down due to this, and it is not only impacting the economy of China but in short run there will also have an adverse impact on Indian MSMEs manufacturing electronics items. The crisis is now across the value chain. From mobile phone manufacturing to TV, inverters, PCBAs, set-up boxes, etc., almost all major segments are getting adversely impacted due to this.

The government is well aware of the current sourcing issues with regard to coronavirus epidemic in China and the disrupted supply chain due to this. Saurabh Gaur, JS, MeitY, has interacted with the industry representatives on this subject and tried to understand the gravity of the situation. He also discussed the possible solutions for the problem being faced by the Indian electronics industry.

MeitY has taken up the matter with the Ministry of Civil Aviation to arrange air cargo facility to lift consignments from China to India. The ministry requires specific information in order to air lift consignments from China, and wants the industry to provide details of material to be lifted, location from where this should be lifted, name of Chinese firm, quantity/weight of consignment, and any other relevant information. Further, MeitY has provided the contact details of key freight-forwarding organizations (shared by the Ministry of Civil Aviation) whom importers may contact for any support or advice they require. Industry associations are working on this and trying to collect the relevant information from manufacturers regarding their consignments to be lifted from China.

Sourcing from other countries is a difficult decision as no country in the world can match the cost and quantity aspects of China. ELCINA believes that sourcing may soon improve as China has allowed few companies to start their manufacturing operations with necessary precautions. ELCINA is taking a step further as the association is organizing its event Source India Electronics Supply Chain on April 28–29, 2020, to find out greater opportunities of alternative sourcing. ELCINA is organizing the event in collaboration with the IT department, Government of Tamil Nadu. This event is aimed to provide an interactive platform for sellers and buyers of India and of across the globe. The event is also aimed to identify prospective export opportunities.

The association believes that the sourcing situation from China will soon improve; if not, the industry will find out alternatives. But this is very clear that one destination can never be trusted for too long.”

Eric Braganza
Haier Appliances India Pvt. Ltd

“White goods makers depend on imports from China for motors, compressors, glass doors (like in microwave ovens) and other parts, which are assembled to make finished products in factories in India. The extended shutdown of factories in China has impacted the supply chain but currently the industry is continuously evaluating as the situation keeps evolving each day. While the industry is working to explore alternative supply channels for components and raw materials, the immediate impact is that the short supply is causing negative pressure on prices of these components. The impact of the novel coronavirus disease, it’s effect on logistics and the rise in customs duty, has led to a price hike of 3 to 5 percent. We have already increased the prices of our deep freezers and will shortly be increasing prices in TV and refrigerator categories as well.

At Haier, we had built up our off-season inventory to cater to the rise in demand during peak season, because of which we are comfortably placed as of now. With summer expected to be intense this year, and an important period for sales especially in segments like AC and refrigerators, we are optimistic for a good season.”

Gagan Preet Singh Malhotra

We cannot ignore the fact that the outbreak of COVID-19 in China has significant impact on the economy globally, including economic slowdown, trade and supply chain disruption, shortage of commodities, and inadequate supply of raw materials. China is the major supplier of key components including open cells in consumer electronics or raw material like motors, gears, compressors, and other electronic components used in the home appliances industry for manufacturing washing machines and air conditioners in India. We, at MEPL, are greatly affected by outbreak of COVID-19 in China as it has delayed the delivery of some important machinery of plant and raw material for our upcoming air-conditioner plant at Greater Noida. The final production of air conditioners will be delayed by 2–3 months. The overall impact of COVID-19 in India is huge, apart from shortage, the prices of raw materials like open cell have skyrocketed by almost 35–40 percent; even the US dollar exchange rate has gone up above Rs 74 that has impacted cost of all materials from China, which is almost 70 percent of total price of the LED TV manufactured in India. COVID-19 has also sent shockwaves of fear and uncertainty among consumers, which has greatly affected the demand for consumer electronics and home appliances. The situation is still grim and nothing can be predicted at this moment. In a way, a reset button has been pressed and the industry needs to look out for ways to counter it. In the longer run, electronics industry in India needs to further develop the manufacturing ecosystem within the country, especially for critical components.

AN Sehgal

“The epidemic disease having spread world-over will have universal effect as all countries are inter-dependent in one or the other way. Specifically speaking of consumer electronics, indeed it would largely affect both the industry – consumers and the country’s economy. Unfortunately, vital and essential inputs of major consumer electronic product like LED TV, open cell having more than 50 percent value of the product, is imported mainly from China, the epicenter of coronavirus, which has largely affected the local production as a result of layoff/suspension of production of open cell in China.

For smaller-quantity availability of open cell, the prices have been hiked from USD 4 to USD 10 and above for the sizes varying from 32-inch and above. Due to various factors prevailing in the world, US dollar is also escalating. Impact of price hike on the consumer is likely to be 5–7 percent, or more. Similar could be the effect on white goods, such as washing machines, refrigerators, air conditioners, and others.

Nevertheless, adversity and present crises would awaken both the industry and the government equally for creating backward integration for production of vital components in the country, which would not only save precious foreign exchange but would also generate massive employment in the country. Needless to mention, electronics is free from any environmental pollution.” 

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