Implications of India’s COVID-19 Crisis

Surging COVID-19 cases in India may push bad loans in the banking sector higher but latest measures from the country's central bank may soften the impact of the new wave that threatens to disrupt business activity in the country.

With reported new daily cases climbing past 400,000, government data show that more than 3.7 million Indians are currently infected with the virus. However, actual numbers could be much higher. The nation's medical infrastructure is stretched and many state governments have announced restrictions on movement. Analysts and economists expect the virus resurgence to hit the economic recovery that was underway after the South Asian nation witnessed its first recession in 2020. That, in turn, is expected to hurt banks' asset quality.

With India reporting about 300,000 cases daily for many consecutive days, analysts have revised down consumption numbers of some commodities.

India will push ahead with its plans to more than double its strategic petroleum reserves despite the unprecedented COVID-19 crisis creating some delays, and the country will soon invite interest from potential investors for its ambitious second-phase expansion, the chief of India's SPRs told S&P Global Platts.

H.P.S. Ahuja, CEO and Managing Director of Indian Strategic Petroleum Reserves Ltd. (ISPRL), said he was hoping to get the final clearance from the petroleum ministry soon, following which ISPRL would be able to float the request for participation for building SPR sites at two more locations in India.

"The pandemic has created some delays and hurdles but we should be able to progress very soon. We have the entire plan in place and can start work on the projects the moment our proposal gets the final green signal from the government," Ahuja said in an exclusive interview.

In the first phase, India set up SPRs at three locations with a combined capacity of 5.33 million mt -- 1.33 million mt at Visakhapatnam, 1.5 million mt at Mangalore and 2.5 million mt at Padur in Karnataka. All three facilities have been commissioned.

For the second phase, the federal cabinet has given its approval to build a further 6.5 million mt of SPRs at two locations -- 4 million mt at Chandikhol in Odisha and another 2.5 million mt at Padur.

India's deadly COVID-19 outbreak and widening localized lockdowns have soured the country's economic growth outlook, stifled its natural gas demand and resulted in more LNG carriers being diverted by gas companies, an analysis by S&P Global Platts showed.

On May 8, the southern Indian state of Tamil Nadu -- one of the country's most industrialized and among its largest by GDP -- imposed a two-week lockdown amid growing infections, joining several other states that have taken similar measures.

The ongoing second wave of the deadly coronavirus pandemic in India is expected to snowball into a major disruptor for the shipping and logistics industry as several ports globally are shunning ships which have called at any location along the South Asian coastline.

Bunkering operations could also come in the ambit of this catastrophic wave that has engulfed India, although no major disruptions have been noted yet as demand has been lackluster, bunker industry sources said.

The impact on global shipping logistics from India's isolation could become a very significant market disruptor by causing delay in supply of ships, said Ole-Rikard Hammer, oil and shipping analyst with Oslo-based Arctic Securities. This will obviously tighten the tankers' supply, Hammer told S&P Global Platts.

India's wheat exports have hit a roadblock over the past few weeks as the coronavirus pandemic has forced shutdowns and impacted key operations across the country, sources told S&P Global Platts May 21.

Apart from emerging bottlenecks at several key ports of India, like Kandla, Mumbai's Jawaharlal Nehru Port, and Visakhapatnam, the industry is witnessing disruptions on the supply side as most major grains markets are shut.

Key trade centers in Madhya Pradesh and Rajasthan, major growers of the staple food grain, have been shut for weeks, traders said. "With major markets shut, supply has tightened in open markets and prices are rising," a trader based in Indore, Madhya Pradesh, said. As supply turns scarce across markets, exporters are also facing difficulties in sourcing the grain for outbound shipments as logistical bottlenecks are creating hurdles, an official with a global food firm said.

India has asked state-owned steelmakers to look into increasing their production of liquid medical oxygen to meet a shortfall caused by a surge in COVID-19 infections, the Ministry of Steel said on April 26.

Due to the request, at least one plant — the Bhilai steel plant operated by The Steel Authority of India Limited, or SAIL, has been temporarily shut to boost its LMO production. The plant has a production capacity of about 3.15 million mt/year.