JOIN USCoronavirus: India may lose Rs 8 lakh crore of GDP to lockdown
India, with an annual gross domestic product of approximately Rs 210 lakh crore, will lose about 4% of its GDP during the 21-day lockdown period.
If, on an average, 8-9% of total goods and services are produced in a month, the lockdown period — with about two-thirds of production loss — could wipe out around Rs 8 lakh crore. And if the curbs are stretched for 10 weeks, the economy might collapse.
The states together could take a hit of Rs 2 lakh crore in the current financial year, while about 10 crore workers in the mining, construction, manufacturing and services sectors could be rendered jobless, according to an estimate by former economic affairs secretary Subhash Chandra Garg.
“A back-of-the-envelope calculation, taking into account the contribution of different sectors of the economy and the extent of the lockdown, indicates that about 60-70% of the goods and services produced in the country or the GDP is getting lost. Roughly 8-9% of the GDP gets produced in a month on an average,” said Garg, who until eight months ago worked at the helm in the finance ministry.
He said that while those workers rendered jobless might have lost about Rs 10,000 of wage each per month, the government may provide at least Rs 2,000 per worker to meet their most urgent needs. This will cost the government only about Rs 20,000 crore a month or about Rs 60,000 crore for three months.
Supporting Garg’s argument, former chief statistician Pronab Sen told DH that a two-week lockdown could probably lead to a loss of about Rs 6 lakh crore. This could be even more for states because most of them had enforced isolation norms even before the Centre announced the same.
He said that economic recovery will not be even after the lockdown is lifted. Immediately after the economic activities begin, there may be a V-shaped recovery, but soon it will get flat.
N R Bhanumurthy, a professor at the National Institute of Public Finance and Policy, said the loss to economy in these unusual times would be so huge that it was difficult to put a number to it on a pro rata basis.
Wholesale and retail trade, hotels, mining, construction sectors will be the worst hit. Agriculture, banking, finance and power sectors will not be as affected, he said.
Farm businesses, essential goods and services exempted from lockdown have suffered less disruption and economic loss. Additionally, e-commerce, except those which could not transition to work-from-home, and pharmaceutical businesses have also not suffered much. These businesses are expected to bounce back fully after the lockdown is lifted.
“My worry is that sectors like construction, mining and small businesses dependent on migrant workers will face a supply crunch. The workers who have left cities will take time to come back. There will be a problem of wages, which might move northward,” Bhanumurthy said, adding that migration has a completely different behaviour.
He said the economy could register the lowest growth that was experienced in the post-reform period since 1991. This will be despite strong monetary and fiscal stimulus measures introduced by the government.
Garg said if the lockdown continued for about 10 weeks, India's economy will be completely ruined. Hence, those with least risk should be allowed to function after April 14.
Throwing light on state finances, he said, “The state governments’ revenues have suffered massively. The Centre should release the held-up amount of approximately Rs 30,000 crore of GST compensation. It should also release the instalment of Rs 56,000 crore of the states’ share in central taxes on due date April 15."