20/04/2024
As China Taiwan conflicts continue let’s have a look at what will be the impact of it on the Indian economy!
Following the Russian-Ukraine war, the world has already been experiencing major economic problems.
Stock markets over the world corrected drastically after a long bull run. Crude rose to 130$ breaking a multi-year high, inflation, rising commodity prices, and other economic issues.
According to the latest developments, we might be witnessing another war crisis between China and Taiwan. And this will force the US to intervene as they have committed to assist Taiwan.
Also, the visit of Nancy Pelosi the speaker of the US made China initiate military operations near Taiwan.
Impact on Global Economy
Inflation
As a result of the Russian-Ukraine war, the West has sanctioned Russia severely, which has negatively affected the global economy. The US and UK are experiencing the highest inflation in 40 years.
In the event that China invades Taiwan, the West may also impose economic sanctions on them. Any actions taken to destabilize China’s economy will have an adverse effect on the world.
Since the world relies heavily on China, western sanctions will lead to a global slowdown.
The slowdown in the Chinese economy
Covid-19 and Real-Estate slowdown have already put China in an economic crisis. During a war, the Chinese economy will be further hit, and the global economy as well, since China is the world’s largest exporter.
Automobile Industry
In spite of Taiwan’s small size and low share of global trade, the world’s automotive industry still heavily depends on Taiwan due to Taiwan’s leading role as a semiconductor chip producer. Taiwan has a market share of 63% in Semiconductor chips(For FY 2020). This is a critical component for the automobile and telecommunication industries.
Impact on the Indian Economy
Probability of Inflation
The global economy is witnessing a slowdown after the Russia-Ukraine war.
If China invaded Taiwan, the US and other allies, including Japan, would be forced to intervene, as well as impose economic sanctions on China, which would disrupt the supply chain. And in that case, India along with other countries might face Hyper-Inflation as the whole world is largely dependent on China.
Manufacturing Sector
In the event of war, the Indian manufacturing sector will be directly affected as India imports a larger amount of raw materials and inputs from China, such as organic chemicals, fertilizers, and electrical components
Auto sector
India, like most of the world, is dependent on Taiwan for semiconductor chips. China- Taiwan conflicts are likely to have an influence on the Indian manufacturing supply chain, resulting in higher costs for automobiles, smartphones and medical devices, refrigerators, washing machines, etc.
Stocks like Tata Motors and Maruti Suzuki are likely to get impacted.
Stocks like Tata Motors and Maruti Suzuki are likely to get impacted.
The War might not entirely have a negative impact on India! Here is how:
Atmanirbhar Bharat-
Many Indian Companies like Vedanta and Dixon Technologies are already investing in semiconductor chip manufacturing. This will decrease India’s dependence on Taiwan for Semi-conductor making India Atmanirbhar!
China Plus One
China is known as ‘World’s factory’ as it is centre for global supply chain. But since the pandemic global companies wants to diversify their manufacturing unit to other countries. This is ‘CHINA PLUS ONE’ theme
The Indian market could be a hotspot for global companies. The ease of doing business and favorable business environment in India will encourage global companies to invest here. Sectors to watch chemical, textile.
Do you think India is poised to become the world’s next manufacturing hub?
Tell us in the comments!
Happy Investing:)
(Source- Business Standard, CNBC)