New report says, the economic impact looks set to be worse than expected earlier.
With the extension of the nationwide lockdown till May 3, a Barclays report has projected that India’s GDP will stagnate and not grow at all during the calendar year 2020.
The UK-based financial services company and investment bank has revised its estimate for India’s gross domestic period (GDP) growth in 2020 to 0.0 per cent from its previous projection of 2.5 per cent. This is the lowest any agency has gone as far as India’s growth story is concerned.
The projections are a tad better for the financial year 2021, as the bank has estimated the GDP growth at 0.8 per cent, meaning the entire growth will come on the last quarter of current fiscal. Barclays had previous forecast that Indian economy may grow by 3.5 per cent this year.
The investment bank said that combined with the disruption in several service sectors, the economic loss is estimated to be close to $234.4 billion or 8.1 per cent of its GDP, assuming that India will remain under a partial lockdown at least until the end of May.
The report said: “While India’s COVID outbreak has not officially reached the community transmission stage, we believe the existing restrictions on movement are causing much more economic damage than anticipated.”
It said that despite being characterised as essential sectors, the negative impact of the shutdown measures on the mining, agriculture, manufacturing and utility sectors appears higher than it was expected.
“As India heads into a longer complete shutdown (until May 3) to combat the rising number of COVID-19 cases, the economic impact looks set to be worse than we had expected earlier,” said the report.
“This is much higher than the $120 billion we had estimated earlier for roughly the same time period previously,” it said.
Several global agencies, financial services companies and rating agencies off late have revised India’s growth outlook for both the calendar year 2020 and financial year 2021 on the back of the coronavirus crisis and the eventual lockdown.
Industry has been seeking a relief package and the government too has assured to come up with a stimulus package to supporte the businesses and the weakening economy. Meanwhile the moderation of March CPI inflation in India to a four-month low will provide support to the MPC to continue to ease its monetary policy to tackle the Covid-19-related economic shock, Kotak institutional equities has said in its report on Indian economy.
It said that since the brokerage expects FY2021 gross domestic product (GDP) growth to fall to 0.4 per cent, a nother 50 bps of repo rate cut with greater focus on unconventional measures to support the economy and financial markets could be expected from MPC.
“We expect the MPC to derive some comfort from the favourable medium- term inflation trajectory. Since we expect FY2021 GDP growth to fall to 0.4 per cent, we expect another 50 bps of repo rate cut,” the report said.
March CPI inflation moderated to 5.91 per cent as against 6.58 per cent in February amid favourable base effects and falling momentum. The softening was led by lower food inflation of 8.8 per cent (10.8 per cent in February) owing to moderation observed across vegetables, meat and fish, eggs and fruits.
March CPI inflation moderated to the lowest level in four months owing to softer food prices, but remains above the RBI’s comfort zone of 4 per cent. While supply disruptions could keep the near-term headline inflation trajectory above 5 per cent, we expect the MPC to focus on addressing the growth concerns, the report said.
Even though economic activity remains weak, core inflation rose marginally to 4 per cent (3.9 per cent in February) primarily due to higher inflation in the personal care segment (8.8 per cent from 6.9 per cent) probably led by higher gold prices.
If the India lockdown continues till mid-May along with moderate relaxation after the end of 21-day lockdown on April 14, it could put 32 million livelihoods at risk and swell non-performing loans (NPLs) by seven percentage points, resulting in the economy contracting sharply by around 20 per cent in the first quarter of fiscal year 2021, with 2 to 3 per cent growth for fiscal year 2021, a new report warned on Friday.
According to the report by leading management consulting firm McKinsey and Company, the cost of stabilising and protecting households, companies and lenders could exceed Rs10 lakh crore, or more than 5 per cent of GDP in such a scenario.
Indo-Asian News Service