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Last updated: 26 Mar, 2020  

India.Growth.9.Thmb.jpg 21-day lockdown to derail India's economic juggernaut: Report

India.Growth.9.jpg
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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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