Coronavirus lockdown woes: India's GDP could slip to negative

India may have escaped unscathed when the world economy is projected to shrink in 2020, but that will not be the case if the coronavirus lockdown is extended through May.

With many economists estimating a one-month lockdown could hit a 2 percentage point blow to the economy, the extension of the lockdown in May will turn India’s 1% growth forecast for 2020-21 to 1% contraction.

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The earlier projections by the World Bank, IMF and major brokerages including Nomura, ranged between 1.5 and 2.8% for the current financial year. However, a two-week extension of the lockdown to May 17 could mean a further slowdown in economic activities, even if the restrictions have been lifted partially.

The Indian economy has not seen a first full-year contraction since 1980.

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A marked slowdown will also be visible in the January-March quarter, the official data for which is expected on May 29. Though the economy was under the lockdown only for 10 days in March, all high-frequency data indicated towards a slowdown even before that. The official estimates suggested India would grow at 5% in 2019-20. That could be revised downward by 1 percentage point in the provisional annual estimates of 2019-20, an official told DH.

The government is also likely to change the fiscal estimates for 2020-21, with a major breach expected in the 2019-20 fiscal deficit numbers, which could be close to 4.5% of the GDP as against 3.5% estimated earlier. The government is yet to release the numbers for 2019-20.

Economists, including Ruchir Sharma of Morgan Stanley, have estimated that if India remained under lockdown for three months, it could knock off 6 percentage points of any growth that was being projected.

A State Bank Of India research projected a 6% loss in nominal gross value added if the lockdown was extended.

The Industry body CII said the economy could contract up to 0.9% in the financial year 2020-21 in the worst-case scenario if the coronavirus pandemic prolongs and the government is unable to restore economic activity fully.

“The economic growth forecasts are likely to change frequently during these uncertain times. The economic recovery will depend on how quickly we are able to contain the virus,” noted economist Pronab Sen said.