What's the cost of Covid lockdown? Today’s GDP data will give an idea

To be sure, India’s growth was already at a six-year-low during the pre-lockdown period.

NEW DELHI: As India braces for a fifth phase of lockdown, economists are wondering what will be the cost of the nationwide lockdown that has been in place since March 25.

To be sure, India’s growth was already at a six-year-low during the pre-lockdown period. In that context, March quarter GDP data due later in the day might be helpful.

As per SBI Economic Research, the cost of the lockdown for the seven days of March may cost have cost India Rs 1.4 lakh crore, which it says may drag India's GDP for FY20 to 4.2 per cent from 5 per cent estimated earlier.

If the estimates are close to reality, June quarter's de-growth would be of a size never seen before. Speculations are already rife that the ongoing lockdown may get extended till June 15, albeit with further relaxations, which may further add to the pain.

For March quarter, analysts have largely estimated GDP growth at around 1.2-1.5 per cent, but they insist that the lockdown was not the sole reason for the subdued growth. While almost all channels of growth got choked in March, the performance of economic indicators over January-February was also modest at best, said ICICI Securities, which estimates India's real output loss for FY21 at Rs 14 lakh crore (4 per cent GDP fall).

Top 10 states, said SBI Research, accounted for 75 per cent of total GDP loss in Q4, with Maharashtra contributing 15.6 per cent of total loss, followed by Tamil Nadu (9.4 per cent) and Gujarat (8.6 per cent). These three states also have the largest number of confirmed Covid-19 cases in India.

"Going ahead, the lockdown over April, with an extension in May across several districts, and the sporadic resumption of activity in others would imply a significant negative bias to GDP growth estimate for April-June, which is likely to be a steep double-digit negative print," ICICI Securities said.

SBI Research has pegged GDP degrowth in June quarter at 40 per cent. Goldman Sachs estimates it at 45 per cent!

India's April manufacturing PMI reading hit a record low of 27.4, while services PMI saw its sharpest decline ever, diving to 5.4 in April from 49.3 in March. Trade data showed 60 per cent contraction in exports and 58 per cent shrinkage in imports in April.

While official release of April IIP numbers is scheduled in the second week of June, SBI expects the factory output to contract 50-60 per cent following an improvement in May (down 30-35 per cent). In March, IIP shrank 16.7 per cent.

So far, 50 per cent of economic activity has been started, but there has been several missing links. For example, Goa is in green zone without tourism offers little help, as does the restarting of urban construction without migrant workers, said Edelweiss Professional Investor Research.

Such concerns have also been raised by Moody’s Investors Service, which believes the economic damage as a result of India’s lockdown will likely be extensive and reflect the country’s inherent economic vulnerability and fiscal constraints, with wide-ranging effects on both public and private sectors.

RBI has so far refrained from giving any GDP guidance. But while cutting policy rates by 40 basis points last week, Governor Shaktikanta Das said: “By all counts, the macroeconomic and financial conditions are austere. The global economy is inexorably headed into recession… Given all these uncertainties, GDP growth in 2020-21 is estimated to remain in the negative territory."

Deborah Tan, Moody’s Assistant Vice President and Analyst, believes the economic fallout of the coronavirus outbreak will weigh on already fragile household consumption, which, coupled with sluggish business activity, will result in a sharp drop in India’s economic growth in FY21.

"Adjusted for the lockdown, India is losing 5.5-6 per cent of nominal output. The gap is huge and the fiscal stimulus, at least to the tune of 4 per cent of GDP, or Rs 8 lakh crore, is needed to fill the gap," Edelweiss said.