Covid-19 catastrophe in India could worsen global shortages

New Delhi (CNN Business) -- An unprecedented and terrifying wave of COVID-19 in India threatens to halt the country's economic recovery and send shockwaves through several major global industries.

Asia's third-largest economy has been struggling for weeks to control the devastating wave of covid-19. Hundreds of thousands of new cases are being reported every day, and economists are reconsidering their forecasts for double-digit growth this year, a worrying sign for a country that slipped into recession last year for the first time in nearly a quarter-century later. that the government imposed a national lockdown.

Prime Minister Narendra Modi has so far resisted calls to impose another full lockdown on the country, even as many regions have announced their own tight restrictions. But several global industries that depend on India are watching anxiously. If the crisis deepens, everything from clothing and pharmaceuticals to financial services and global shipping could suffer.

Supply chains

About 80% of the world's trade in goods by volume is carried by ships, according to the United Nations World Conference on Trade and Development, with India providing many of its crews.

More than 200,000 of an estimated 1.7 million seafarers worldwide are from India, according to Guy Platten, secretary general of the International Chamber of Shipping. Many of them have officer ranks and roles that require significant skills, he added.

"Hopefully," this situation can be resolved, Platten told CNN Business. Failure to do so could cause a major "seafaring shortage," which would "disrupt the global supply chain," he added.

As many countries have banned flights from India, it is now impossible to move Indian workers to ports around the world and change crews.

René Piil Pedersen, Director of Maritime Relations at Maersk, the world's largest container shipping company, hopes that countries will begin to distinguish between regular travelers and sailors. Otherwise, he said, the world could face both a serious threat to global cargo flows and a "humanitarian crisis" because crews would not be able to leave their ships and return home.

"It will take a heavy toll on their mental well-being," said Pedersen, whose company employs 30% of its sailors from India.

The pandemic threw global shipping into chaos last year, with nearly 200,000 sailors stranded for months due to port closures and grounded planes. Some workers had started calling their boats "floating prisons", and Pedersen fears a return to that scenario if India's Covid-19 crisis continues unabated.

There are also significant delays in ship movements.

Some places, such as the United Arab Emirates, Singapore, Hong Kong and China, "have already imposed strict quarantine restrictions on ships arriving from Indian ports," said Sankar Narayanan, shipping manager at shipping and logistics company GAC India. .

Experts say vaccinating sailors could be a solution, but it may prove difficult to execute.

Vaccines and other pharmaceuticals

The global vaccination campaign is already suffering due to the wave of covid-19 in India, which typically produces more than 60% of all vaccines sold globally. The country is home to the Serum Institute of India (SII), the world's largest vaccine manufacturer. Its vast manufacturing capacity is why the country has been brought on board as a major player in Covax, the global initiative that provides free or discounted doses of the Covid-19 vaccine to low-income countries.

The SII agreed last year to manufacture up to 200 million doses of vaccines against the virus for up to 92 countries. But, with only 2% of India's population fully vaccinated, the Government and IBS have shifted the focus of supplying vaccines to other countries and are now prioritizing Indian citizens.

The bad news does not end there. Apart from the shortage of the covid vaccine, there could be other consequences for the global pharmaceutical industry if the spread of the infection in India is not controlled soon.

India is the world's largest supplier of generic drugs: copies of brand-name pharmaceuticals that have the same effects but cost less. In the United States, 90% of all prescriptions are filled with generic drugs and 1 in 3 pills consumed is produced by an Indian generic manufacturer, according to an April 2020 study by the Confederation of Indian Industry and KPMG .

But Indian drugmakers source up to 70% of their raw materials from China, a link in the supply chain that appears vulnerable given the rise of the new coronavirus. In late April, China's Sichuan Airlines suspended cargo flights to India for 15 days. That prompted India's leading pharmaceutical export group to write to India's ambassador in Beijing, urging him to intervene.

In the letter, Ravi Udaya Bhaskar, director general of the Pharmaceutical Export Promotion Council of India, called the suspension "concerning" and said it could have a "cascading effect" on the supply chain.

"Most countries depend on India for generic drugs and India depends on China for raw material. It will be a huge blow to [the] global pharmaceutical supply chain if trade between the two is interrupted," said Tinglong Dai, Associate Professor of Operations Management and Business Analysis at Johns Hopkins Carey Business School.

For now, the impact seems limited. Bhaskar told CNN Business last week that there is currently no drug shortage as large companies have enough raw material to draw on for the next three to four months. He also said that Sichuan Airlines is likely to resume service this week.

Sichuan Airlines did not respond to a request for comment.

Clothing

India is one of the world's largest textile exporters and the industry is facing severe labor shortages.

"This is the first time our generation has experienced something like this. No one was prepared for this terrible scenario," said Arpit Aryan Gupta, Partner and Director of New Business Development at Ludhiana-based clothing manufacturer NG Apparels, Punjab, a major center of garment production.

The company, which supplies brands like New Balance and Nordstrom, employs about 100 skilled and semi-skilled workers, and nearly 50% of them have left since the latest wave of Covid-19 began. Gupta said he is providing housing for the remaining workers on the site to keep the factory running.

Elsewhere, manufacturers are facing similarly worrying scenarios.

In the main garment production centers of New Delhi and Bangalore, which are also states with a high number of covid-19 infections, absenteeism among workers reaches 50%, according to the consultancy Wazir Advisors. And for many manufacturers still reeling from last year's slowdown, worker safety has become a major concern.

Consumption and exports of the domestic garment industry last year fell 30% and 24%, respectively, according to Wazir Advisors.

"But for 2021, it is difficult to project at this time, since we are not sure when this pandemic will end," the firm added.

India is also a major world exporter of leather and leather goods. The country is the second largest exporter of leather garments and the fourth largest exporter of leather goods in the world, according to the Indian Council of Leather Exports. It is also a major shoe producer after China, producing almost 3 billion pairs of shoes a year.

Last year, the pandemic dealt a heavy blow to India's leather industry and companies had barely begun to recover before the latest wave led to mass closures and shortages of skilled staff.

Financial services

Big banks and accounting firms are struggling to keep their online operations afloat, given the importance of India as a hub for their back offices.

Many companies have outsourced a large number of information technology and operations jobs to India in recent decades, attracted by an educated workforce and cheaper labor costs. Nearly 4.4 million people in the country are employed in information technology and business process management, according to the National Association of Software and Services Companies, a trade body.

Some companies are taking some steps to address the crisis, such as moving work to other countries, encouraging staff to work from home, and extending project deadlines.

Goldman Sachs and Wells Fargo, for example, have implemented remote work for all employees. But working from home during a pandemic is tricky, especially if employees have to care for sick family members. There are also challenges around security and data protection, as employees may be handling sensitive company or customer information.

British banks Barclays, NatWest and Standard Chartered are in some cases redirecting work to other countries to ease pressure on employees in India, many of whom have fallen ill or have caregiving responsibilities at home.

EY India, which has more than 56,000 workers, activated a business continuity plan at the start of the spike in Covid-19 cases, which included moving work to other geographies. Nearly all of its employees work from home, according to Julie Teigland, regional managing partner.

"A significant number of EY people and their families have been directly affected by the severe second wave of Covid in India," she told CNN Business.

Parija Kavilanz and Hanna Ziady contributed to this report.