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21-day lockdown to derail India's economic juggernaut: Report
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SME Times News Bureau | 26 Mar, 2020
As the Indian economy eagerly awaits a financial package to prevent the
COVID-19 pandemic from causing major harm, a new report said on
Wednesday that the 21-day nationwide lockdown will result in a direct
output loss of nearly 4.5 per cent, with further indirect effects.
Finance
Minister Nirmala Sitharaman has said that the government is currently
addressing the compliance related issues and an economic package
covering issues of concern to the industry would be announced separately
later.
According to Tokyo-based financial services group Nomura,
nearly 75 per cent of the economy will be shutdown, resulting in a
direct output loss of approximately 4.5 per cent.
"Additionally,
there will be indirect effects such as the persistence of public fear
factor (even after the lockdown ends) -- a high risk that the
livelihoods of the predominantly unorganised workforce will be hit and a
sharp increase in corporate and banking sector stress, which are likely
to further weigh on growth is beyond Q2 in H2 2020," the report warned.
While
the states have been largely leading the fiscal charge against COVID-19
so far, the report said it expects the Central government to soon
announce a stimulus package of around 0.7-1.1 per cent of the GDP.
"Along
with the growth hit and poor tax collections, we expect the fiscal
deficit for FY21 (year ending March 2021) to balloon by over 1 per cent
of GDP from the 3.5 per cent target set in the budget (more than the
escape clause leeway of 0.5 per cent of GDP)."
Monetary policy proactiveness has been missing so far, it said.
However,
"we expect at least 50bp of policy easing on or before the April 3
policy meeting, accompanied by a host of liquidity injections and
unconventional policy measures to reduce financial sector tightness,
including large scale open market operations."
The government's
concern is that India is reaching the exponential part of the epidemic
curve, with the number of COVID-19 cases currently tracking 562 (512 are
active, and 11 deaths so far), which is now an average daily growth
rate of around 23 per cent.
In the top 2 infected states of
Maharashtra and Kerala, the number of cases have breached 100, while
most states are seeing their numbers increase.
"Experience from
other countries show that this could be the inflection point for a sharp
jump in cases from here on," the findings showed.
Given India's
large population, limited testing and contact tracing facility and
relative scarcity of quality healthcare, it is understandable that the
government is attempting to contain the spread rather than move to the
mitigation stage, the report mentioned.
Media reports on
Wednesday claimed the government may announce a financial stimulus worth
$20 billion (Rs 1.5 lakh crore) to help revive the economy.
The
Indian economy that had already slowed down before the outbreak of novel
coronavirus, is in for a more difficult period in the coming months
with businesses almost coming to a standstill.
The Finance
Ministry and the RBI have taken several steps to ensure that liquidity
in the system remains intact. But the industry has called for more
stimulus measures to fight depression like conditions setting in the
economy.
The report said that the lockdown is essential to slow
COVID-19 transmission, "but this will come at a very heavy economic cost
in the short term with potential medium-term spillover effects".
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