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Coronavirus crisis: Lockdown to wipe off Rs 10 lakh crore from economy, warns HDFC Bank report

Coronavirus Outbreak in India: The service sector will be most impacted due to lockdown as consumption of non-essentials takes a hit but lockdown's initial impact on manufacturing activity is expected to be somewhat lower

Manoj Sharma   New Delhi     Last Updated: March 31, 2020  | 23:00 IST
Coronavirus crisis: Lockdown to wipe off Rs 10 lakh crore from economy, warns HDFC Bank report
The nationwide lockdown has caused severe crunch in labour, causing supply-chain disruptions

HDFC Bank, in its latest treasury report, has said the 21-day country-wide lockdown will shave off 74 per cent of the real GDP (Gross Domestic Product) or Rs 10 lakh crore in the first half of 2020. It adds that growth in April-June will contract 3 per cent. The contraction in economic growth will also spill over to the next quarter, thus keeping the growth weak but in positive quadrant, it said.

The report said service sector would be the most impacted due to the lockdown as consumption of non-essentials takes a hit. However, once the lockdown is lifted, the service sector activity may bounce back rather quickly. The nationwide lockdown has caused severe crunch in labour, causing supply-chain disruptions.

The HDFC Bank report claims the lockdown's initial impact on manufacturing activity is expected to be somewhat lower as 1/3 of net value added in manufacturing comes from the production of essential items such as food, beverages, petroleum and coke, pharma and medicinal products. It added the drag on manufacturing growth may linger on beyond the first half of the next fiscal year.

Also read: Coronavirus destructs most, but some firms are flipping the script

Overall, HDFC expects growth to rebound fairly "strongly" in the second half supported by fiscal and monetary stimulus. "Cumulatively, we expect the centre and state governments to announce a fiscal stimulus package of 2 per cent of GDP," the report said.

The Modi government -- as part of its initial package for poor people, women, and employees -- has announced a stimulus of Rs 1.7 lakh crore or 0.8 per cent of the GDP. This package includes health insurance for health workers, food for the poor and direct benefit transfers.

Meanwhile, the bank expects the Centre and the state governments to announce additional measures, including direct cash outs where bank transfers are inadequate, support for sectors affected by weak demand or supply disruptions post the lockdown and government guarantees for borrowing by NBFCs (non-banking financial companies) and the MSME (Ministry of Micro, Small and Medium Enterprises) sector. The bank also expects the Reserve Bank of India to support businesses hit by COVID-19 by further cutting the repo rate up to 100bps.

The RBI, in its 7th bi-monthly monetary policy announcement, cut repo rate by 75 basis points (bps) along with 90 bps reduction in the reverse repo rate to offset the impact of coronavirus pandemic on the economy. With this, several banks, led by the State Bank of India, are now passing the rate cut benefit on to customers to offset the impact on the economy.

India on Monday reported the biggest single-day spike in new COVID-19 cases. It reported 227 new cases taking the total tally to 1,385. Out of this, 101 have been cured and discharged from hospitals. The death tally stood at 32  till March 30 morning, according to Health Ministry data.

Also read: Coronavirus cases in India surge to 1385, death toll at 32; state-wise tally

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