Major challenges for India and the LAC region Post COVID-19

Updated: Apr 20, 2020 5:32 PM

The region will feel it deeply because their economies are dependent on investment and trade from the United States, Europe and China.

COVID-19, post covid 19, LAC region, coroanvirus impact, indian economy, united states, europe, china, foreign investment, economic falloutGovernments have taken some measures to protect their citizens from the economic fallout due to COVID19 which is expected to cause the biggest single-quarter decline since the big recession from 2008-2009. (Representational photo: PTI photo)

By Sandeep Wasnik

For the Latin America and the Caribbean (LAC) region with soaring poverty rates, high population density and lagging health care, COVID-19 poses a tremendous risk. The region will feel it deeply because their economies are dependent on investment and trade from the United States, Europe and China. However, these are currently home to hot-spots for the COVID19. The economies of LAC region depend heavily on foreign investment and demand for primary commodities such as oil, copper, and zinc.

It is expected that GDP will contract over 2 per cent across the LAC region and 3 percent in Colombia, Brazil and Mexico. Governments have taken some measures to protect their citizens from the economic fallout due to COVID19 which is expected to cause the biggest single-quarter decline since the big recession from 2008-2009.

Countries like Chile as well as El Salvador have adopted certain measures to provide immediate relief to their citizens. For instance Chile announced a $12 billion economic plan that equals roughly 4.7 percent of the country’s GDP with three main objectives: strengthening the Health systems budget, protect family income, and protect jobs and employers.

On the other hand, El Salvador, President NayibBukele suspended utility, mortgage and credit card payments for three months for all Salvadorans, and will provide a $300 stimulus payment to approximately 1.5 million households affected by the virus.

Pessimistic Scenario:

In LAC region debt levels are higher than they were at the outset of the financial crisis, social safety nets remain very weak, tourism has evaporated, and a number of countries such as Argentina, Brazil, and Mexico are already mired in a weak patch economically, while Venezuela faced an outright crisis before the COVID19 arrived.

The drop in oil prices will severely worsen the economic impact of the pandemic for oil exporting countries and commodity prices, exports, tourism, remittances and foreign direct investment are all on the cards and will pummel regional economies.

India – LAC Region Commodity Trade Business:

India has exported nearly $ 13.56 Billion value products to LAC region in financial year 2018-19. Info-graph shows LAC Region import from the India and the top most 5 Products (Two Digit HS CODE) which India is exporting are:

1. HS CODE 87 – Vehicles other than railway or tramway rolling stock, and parts and accessories thereof – Value: $ 3296.17 Million.
2. HS CODE 29 – Organic chemicals – Value: $1218.85 Million.
3. HS CODE 30 – Pharmaceutical products – Value: $923.88 Million.
4. HS CODE 38 – Miscellaneous chemical products – Value: $917.55 Million
5. HS CODE  84 – Machinery, mechanical appliances, nuclear reactors, boilers; parts thereof – Value: $736.24 Million

For more understanding we need to focus on Indian state wise trade for the region. Maharashtra is in the top position with an export value of $3812.11 Million followed by Gujarat $3127.82, Tamil Nadu $1713.13, Haryana $687.37 and so on.

Info-graph shows the State wise exports to Latin America and the Caribbean countries in Financial Year 2018-19.

Some of the Indian states/Districts/Cities are the Hot-Spot of COVID19, which gives clear idea that trade business with Latin America will be affected even after the lockdown is lifted. As, not all industries will be not open due to social distancing but there can be a working model for Essential Goods Manufacturing Industries.

Essential Goods Manufacturing Industries – Quarantine Model (EGMI-QM):

Essential good manufacturing industries are those industries who manufacture essential products, like Food Processing, Pharmaceuticals, Health Care, Agriculture Products, Packaging and others.

An industry can run on minimum man power, however, the company needs to provide accommodation/camps, food and essential services in factory area, this factory area will be quarantined so that industry will keep rolling and make economy keep role. These Minimum Man power will have to go for health check-up before entering the quarantine factory area. This model can be adopted in India, Latin America and any part of the world.

Info-graph gives basic model visualization.

IT AND ITeS INDUSTRIES –

The IT industry has been India’s crown jewel in our country’s economic growth for the past two decades. An industry has provided global recognition for Indian youth’s technology and entrepreneurial capabilities and immensely contributed in improving India’s international image. Info-Graphs shows Indian IT and ITeS sector business.

IT and ITeS sector can play important role during lockdown/post-lockdown and are also favourable for social distancing (Work from Home). Indian IT and ITeS sectors can focus on Latin America Sectors for Banking Process, Company Financial& Audit Process, E-Commerce industries process, Telecommunication industries, development of online applications, Agritech and others. Customers may accelerate their journey towards Cloud and Digital adoption to minimize human touch points. And, this should create huge business opportunities for Indian IT companies and push for increased onshore and local presence.

Which sectors need focus between India and Latin America:

As we have seen time and time again, both economic boom and economic slowdown eventually come to an end. Three months ago, we were in a bull market, meaning all aspects of the financial market, stocks, bonds, real estate, currencies, commodities, etc. were on the rise or were expected to rise and then the virus emerged. Though the stock market has plummeted and many businesses and institutions are closing their doors, there may be hope in the V-Shaped economy rise. Annual GDP Growth Rate in India is expected to be 3.20 percent by the end of this quarter. Looking forward, estimate Annual GDP Growth Rate in India to stand at 1.50 in 12 months’ time. In the long-term, the India GDP Annual Growth Rate is projected to trend around 2.50 percent in 2021 and 4.00 percent in 2022.

Recently, during lockdown due to COVID19 , E-Commerce industries, Videoconferencing applications, Internet or Telecom industries, Entertainment Sector, Food Processing Industries, Fund Transactions, Agriculture and Agritech, Health Care and Insurance, Pharmaceuticals Sector, Packaging Industries, Logistics Services, IT and ITeS sector and others have been the focus areas and it will continue growing. These are the sectors which will contribute to the economy and economy will rise by V-Shaped.

Indian Pharmaceuticals:

Hydroxychloroquine is one of the oldest and best-known anti-malarial drugs with lesser side effects. It can be bought over the counter in India and is fairly inexpensive. But its purchase and use has been severely restricted as it is being selectively used for Covid-19 treatment due to its antiviral properties.

India, the world’s largest producer of hydroxychloroquine (HCQ), exported $51 million worth of the drug in FY19. This was a minuscule portion of the country’s $19-billion pharma exports. Indian Pharmaceuticals industries are ready to ramp up the production to meet domestic as well as export requirements. India manufactures 70 percent of the world’s supply of hydroxychloroquine (HCQ).

India exported hydroxychloroquine API worth USD 1.22 billion in April-January 2019-20. During the same period exports of formulations made from hydroxychloroquine was at USD 5.50 billion. India currently has an annual installed capacity of around 40 tons of active pharmaceutical ingredients (APIs) of hydroxychloroquine, with this capacity, can make around 200 million tablets of 200 mg.

(The author is Latin America and the Caribbean Countries Market Expert. Views are personal.)

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