Coronavirus impact on Indian economy, according to Maruti chief

The new coronavirus outbreak is unlikely to have a serious impact on India’s struggling auto sector even as factories remain shuttered in China as part of an effort to contain the infection, the chairman of Maruti Suzuki said.

Maruti Suzuki is one of India’s top auto manufacturers.

While many Maruti vendors rely on supplies of some components and raw materials from China, most of them have inventories of up to 30 days, Maruti Chairman R.C. Bhargava told CNBC’s Tanvir Gill. Efforts are also being made to look at alternative sources for some of those parts, he explained.

“It’s not a large amount,” he said, referring to the percentage of components Maruti and its vendors import from China. “Total imports are small, but the point is that for a car, even if one component is not there, I can’t put the car on the road.”

He added that while alternative sources of supply will probably add a little to the cost of making a car, it is unlikely to disrupt production or sales.

India’s auto industry has been struggling due to rising prices of cars and the lack of cheap loans available due to problems in the financial sector, which made consumers more reluctant to spend. Car sales fell 19% last year while sales of two-wheelers declined 14%, Reuters reported.

The global economic impact of the new outbreak will be greater than what it was during the SARS epidemic in 2003 because China’s GDP now accounts for a larger share of the world economy, Bhargava said. China overtook Japan as the world’s second-largest economy in 2010.

“Compared to SARS, this will have a bigger impact, largely because the Chinese economy has become a much bigger economy,” he said. “Even if the impact is of the same magnitude, because it’s enhanced several times, it will have an impact on (the global economy).”

Bhargava pointed to recent declines in crude oil prices amid speculation of lower Chinese demand. Still, India may not be as affected since it does not “have that much of dependency either on (international) exports or on the Chinese market.”

The pneumonia-like virus outbreak, which was first reported in the Chinese city of Wuhan in December, has rapidly spread across the country and to more than 20 countries so far. The death toll from the new, mysterious coronavirus in mainland China surpassed that of SARS — or severe acute respiratory syndrome — with 361 people killed through the end of Sunday.

More than half of China’s growth hubs have not returned to work, extending the Lunar New Year holiday by at least a week in a bid to stem the spread of the virus. That means factories would remain shut for a longer time than initially planned, effectively disrupting the production and export of materials used by companies around the world.

Many international firms have already suspended operations in China.

Maruti’s rival Tata Motors recently said the virus outbreak in the country could affect production for its luxury car brand Jaguar Land Rover, Reuters reported.