Coronavirus Outbreak: Analysts flag economic growth concerns post-lockdown extension

Mumbai: The 19-day extension of the lockdown on Tuesday by Prime Minister Narendra Modi led analysts to flag concerns over its economic impact, with some estimating a GDP contraction of 1 percent in FY21 as well.

Rating agency ICRA said there is a possibility of the GDP contracting by 1 percent in the just-started fiscal year 2020-21, while Japanese brokerage Nomura said it will de-grow by 0.5 percent for 2020. British peer Barclays said GDP will be stagnant with zero growth for the calendar year.

Deutsche Bank On Indian Economy: See FY21 GDP growth at 1.2%, factoring in at least 5% contraction in Q1 pic.twitter.com/CBBIR3thLA

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The government had unveiled a Rs 1.7 lakh crore relief package right after announcing the national lockdown last month, but analysts have been near-unanimous in calling it insufficient. Some also said less than half of the package was actually new, as a majority of the relief was already announced in the Budget.

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Barclays said the extension of the lockdown will have an incremental $114.4 billion impact on the economy, taking the total value of the pain to $234.4 billion because of the 40-day lockdown.

Reflecting the same, ICRA said there are chances of a contraction of up to 15 percent in the GDP during the ongoing April-June quarter, which will result in the fiscal growth coming in between 1 percent to (-) 1 percent.

“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 20th and the magnitude by which government spending is stepped up to cushion the blow from the lockdown,” the rating agency said.

Nomura said there is a need for another round of stimulus.

“The next tranche is likely to be aimed at cash-flow challenges faced by small and medium-sized enterprises and other hard-hit industries,” the Japanese brokerage said.

It said the central government’s fiscal deficit will widen to 5.1 percent of GDP in FY21, well above the 3.5 percent Budget target. It also expects another 0.75 percent in rate cuts along with further unconventional measures to boost liquidity and reduce credit risk premia from the RBI.

In his address on Tuesday, Prime Minister Narendra Modi acknowledged that the poor are facing difficulties because of the lockdown but said continuing with the measures was necessary to contain the spread of the COVID-19 infections.

He also said that starting 20 April, there will be a relaxation in the lockdown in select spots which are unaffected by the virus.