The lockdown extension has suddenly stirred up a witches' brew for the Indian economy.
All was relatively well until Tuesday morning even though the country was losing out $4-5 billion a day (or more) in lost national output during the 21-day lockdown period. Yet, FY21 growth estimates were within the respectable 1-2 per cent and nowhere near the negative territory.
But everything changed with Prime Minister Narendra Modi's call for a 19-day lockdown extension effectively putting economic activity on a bed of nails.
Both Icra and Nomura sense Q1 GDP will contract, which by extension may translate to a bleak full year growth of +/-1 per cent.
But Barclays estimates zero growth in calendar year 2020, while the IMF, conservative as usual, pegs FY21 GDP at 1.9 per cent. These projections too are cringeworthy, but when compared to growth contraction, even zero growth makes the case for half a loaf being better than no bread.
"The size of the GDP shrinkage would be contingent on the extent to which a graded resumption in activities is permitted in some areas post-April 20 and the magnitude by which government spending is stepped up to cushion the blow from the lockdown," noted Aditi Nayar, Principal Economist, Icra.
During the current quarter, she estimates GDP to contract by 10-15 per cent this quarter, which would translate to a bleak full year growth of +/-1 per cent.
Similarly, Nomura too believes GDP to average a negative 0.5 per cent in 2020 versus 5.3 per cent in 2019.
"In our base case, we are currently projecting GDP growth at 3.2 per cent y-o-y for Q1, and subsequently to dip significantly to 6.1 per cent for Q2. We expect some sequential pick-up in H2, but on a year-on-year basis, growth is likely to be lacklustre at - 0.5 per cent for Q3 and 1.4 per cent for Q4,” it noted.
Meanwhile, according to Barclays, the economic cost of the 40-day lockdown will be a staggering $234.4 billion, or 8.1 per cent of the GDP (much higher than the $120 billion it estimated earlier.) This assumes the Asia's third largest economy will remain under partial lockdown at least till the end of May.
Accordingly, it revised downwards its GDP estimates to 0 per cent for calendar year 2020. Just a few weeks ago, it pegged growth rate at 2.5 per cent. For the full fiscal FY21, growth is likely to be 0.8 per cent, down from its previous forecast of 3.5 per cent.
While India’s coronavirus (COVID-19) pandemic outbreak has not officially reached the community transmission stage, analysts at Barclay's believe the existing restrictions on movement are causing much more economic damage than anticipated.
“The negative impact of the shutdown measures on the mining, agriculture, manufacturing and utility sectors appears higher than we had expected. Combined with the disruption in several service sectors, we now estimate that the economic loss will be close to $234.4 billion (8.1 per cent of GDP), assuming that India will remain under a partial lockdown at least until the end of May. This is much higher than the $120 billion we had estimated earlier for roughly the same time period previously,” wrote Rahul Bajoria, chief economist, Barclays India, in a report co-authored with Shreya Sodhani.
Barclays assumes the lockdown will end by early June, followed by a modest rebound in activity, reflecting inventory rebuilding across certain sectors. “However, if we are still seeing localised COVID-19 outbreaks, which lead to frequent shutdowns, the scope for the economy to recover will continue to decline,” they cautioned.