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A month-long national lockdown can shave off 1-2% of GDP, claims report

According to a report by Bank of America Securities India, a month-long national lockdown to stem the spread of COVID 2.0 could scrape off 100-200 bps (basis points) of the GDP resulting in a 300-bps risk to annual growth

twitter-logoBusinessToday.In | April 27, 2021 | Updated 13:13 IST
A month-long national lockdown can shave off 1-2% of GDP, claims report
Given the high economic cost, the brokerage expects the Centre and the states to try to contain the spread with further tightening of night curfews and localised lockdowns

A month-long national lockdown to stem the spread of COVID 2.0 could scrape off 100-200 bps (basis points) of the GDP (Gross Domestic Product), resulting in a 300-bps risk to annual growth, according to a report by Bank of America Securities India, which also expressed reservations over the ability of local lockdown to control the coronavirus pandemic.

The second of COVID-19 has caught the Modi government off-guard with the daily caseload surging over 6.5 times over the past 30 days. India is the worst-hit country globally, recording around 3.53 lakh new daily infections on Monday, which dipped slightly to approx.3.23 lakh on Tuesday.

Also Read: Top economies that have suffered worst GDP fall due to COVID-19

"It remains to be seen if the second wave subsides without a national level lockdown. A month of nationwide lockdown costs 100-200 bps of GDP. This poses a 300-bps risk to our 9 per cent real GVA growth forecast for FY22," Bank of America Securities India economists Indranil Sen Gupta and Aastha Gudwani said in a note Monday evening.

Given the high economic cost, they expect the Centre and the states to try to contain the spread with further tightening of night curfews and localised lockdowns.

The economists also expect the Reserve Bank of India (RBI) to come to aid by funding the government's welfare measures, like the resumption of free food grains to the needy in May-June, for which it needs an additional Rs 26,000 crore, or 0.1 per cent of GDP, through OMOs/G-Saps and other liquidity infusing measures to arrest the rise in yields.

Also Read: India FY22 GDP growth revised down to 10.4% from 11%: SBI Research report

They expect the RBI to remain on hold in FY22 and hike rates by 100 bps in FY23.

"To slow rise in yields, we expect the RBI to conduct $68.7 billion of OMOs/G-Saps and hike and extend banks' HTM limits by 2 per cent of their books to FY26, and continue forward forex intervention," the brokerage said.

On the vaccination front, they said while 8.7 per cent of the total population has been administered the first dose, only 1.6 per cent has received both doses.

(With inputs from PTI.)

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