Slowdown set to worsen in coming quarter

Slowdown set to worsen in coming quarter

A migrant worker eats food offered by local residents on a highway as he and others are returning to their villages, after India ordered a 21-day nationwide lockdown to limit the spreading of coronavirus disease, in Ghaziabad, on the outskirts of New Delh

The state of the Indian economy, which is already going through a prolonged slowdown, is expected to worsen in the coming quarter as the country has locked down to battle the coronavirus pandemic, according to economists polled by DH.

A majority of the five economists polled by DH predicted that economic growth will hover around 1% in the first quarter of the next financial year, as the the lockdown has disrupted the supply chain.

"We now expect the impact of social distancing and lockdowns to limit GDP growth to 2.4% in Q4 FY2020 and a marginal 0.5% in Q1 FY2021, despite the support from agriculture and government spending. As a result, we expect the annual GDP growth to ease from 4.4% in FY2020 to 4.2% in FY2021," said Aditi Nayar, Principal Economist at ICRA.

Most analysts are basing their estimates on the fact that the lockdown would be lifted at the stipulated time. "This is an evolving situation and it is difficult to estimate the impact. These estimates are on the assumption that normalcy will return from two weeks of April," said Kavita Chacko of CARE Ratings.

However, alarm bells have come from Asia's largest brokerage house — Motilal Oswal, a bull market trader. Its chief economist Nikhil Gupta has warned that India may face the first recession in almost three decades.

"With two consecutive quarters of GDP decline, India could see its first recession since the 1990s," he said.

According to the sensitivity analysis of the adverse impact of lockdown by the firm, a single day of complete lockdown could shave off 14-19 basis points (bps) of annual growth and 55-75 bps from quarterly growth. 

"It implies that with seven days of complete lockdown and eight days of partial lockdown, real GDP could contract by about 3% year-on-year (Y-o-Y) in 4QFY20," he adds. With 14 days of complete lockdown in April 2020, the brokerage expects the situation to deteriorate further. Assuming things normalise from mid-May 2020, GDP could decline by 12.2% Y-o-Y in 1QFY21, according to Gupta.

Despite Finance Minister Nirmala Sitaraman announcing a Rs 1.7 lakh crore ($22.5 billion) stimulus package, mostly consisting of welfare schemes, experts think that it is not enough. "The fresh announcements related to cash transfers appear to be relatively modest at this stage," says Nayar.

Global brokerage house Barclays has predicted a loss of $120 billion (about Rs 9.5 lakh crore) to the Indian economy from the lockdown, and the government's stimulus makes up only 19% of this lockdown.

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