With Prime Minister Narendra Modi extending the nationwide lockdown to May 3, foreign brokerage Barclays has cut India's calendar year (CY) 2020 GDP forecast to zero per cent from 2.5 per cent earlier and 0.8 per cent for the financial year 2020/21 from 3.5 per cent earlier. The brokerage has also lowered its CY21 GDP growth forecast to 7.5 per cent from 8 per cent, previously.
Even as Barclays recognises that the coronavirus pandemic has not officially reached the community transmission stage, it believes the existing restrictions on movement are causing much more economic damage than anticipated, including in the essential sectors. "The negative impact of the shutdown measures on the mining, agriculture, manufacturing and utility sectors appears higher than we had expected," it said.
The brokerage estimates the economic loss will be close to $234.4 billion (8.1 per cent of GDP), assuming the country 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," it said. Most losses are expected to be incurred in the first part of Q2 2020.
Barclays further pointed out the estimates factor in an economic scenario where the Kharif crop cycle during the monsoon will remain unaffected. The brokerage also expects a weaker profile for recovery given the deteriorating global backdrop, and rising risk of COVID outbreaks leading to local-level shutdowns.
"Across the country, we see major economic losses for the large industrial states such as Maharashtra, Delhi, Tamil Nadu and Punjab. Even for states that are likely to experience a faster recovery cycle -- such as Kerala, Karnataka, Haryana, while their economic losses will likely be limited -- we think a precautionary increase in savings and reduction in discretionary consumption, especially on travel and recreational services, will weigh on growth rates longer. This drives the downward revision in our growth recovery outlook to show a shallower pick-up in Q3," the Barclays report says.
The brokerage emphasised that "modest fiscal stimulus" unveiled by the government so far was unlikely to offset the negative impact on 'animal spirits' caused by relative inactivity for a long period. "Major policy interventions, if taken, could change the outcome and bring about a faster upswing after the lockdown opens. That said, the slowdown in early Q2 will be driven entirely by the shutdown and is unlikely to be impacted by policy support," it added.
Meanwhile, the data from the Ministry of Health and Family Welfare shows 8,988 active coronavirus cases in India and 339 deaths as of April 14, while 1,035 have been cured or discharged.