Coronavirus-hit Maharashtra's lockdown may weigh down India’s economy

The lockdown in Maharashtra, which has seen the highest number of COVID-19 cases and fatalities, is likely to weigh heavily on the country’s economy, which may see no growth in the financial year 2021 or may even contract.

This is because the state is one of India’s most prosperous, accounting for nearly 15% of the country’s economy, 24% its total exports, a hub of manufacturing, finance and services sector and home to nearly 15 lakh MSMEs.

With Maharashtra accounting for a third of India’s tally of virus cases, the severest impact is likely to be felt on the services sector which accounts for around 55-60% of the state’s economy.

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“Restrictions on companies in this sector could be lifted at the fag end of the relaxation,” Care Ratings told DH

The country’s most industrialised state has the maximum number of red zones, where fewer commercial activities are allowed. At least 14 of its 36 districts are in the red zone and only six fall in the green, where full-fledged economic activities are allowed.

Mumbai, the trade and commerce capital and the hub of manufacturing, accounts for over 6% of India’s economy, 30% of income tax collections, 60% of customs duty and Rs 40,000 crore in corporate taxes. It is in the red zone.

Such is Mumbai’s influence that global rating agency Moody’s cited surging COVID-19 cases in the city as one of the reasons for slashing India’s GDP growth rate to zero for the financial year 2021.

Besides, almost 65% of Maharashtra’s total revenue receipts comes from its own sources, including GST, stamps and registrations, state excise duty, sales tax and VAT.

“Extension of the lockdown could further exert pressure on these revenue streams, especially state excise and stamps and registration fees. Therefore, financing of the additional expenditure would require the government to resort to additional borrowings,” according to Care Rating’s projections.

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Pune, the automobile and IT hub, too is in the red zone and so are other centres of economic activities such as Nagpur, Solapur and Nashik, known for its vineyards. More than 200 companies in Pune’s industrial belt have started operations. But their assembly lines may not be functional as auto sector MSMEs are under extended lockdown.