UK’s Barclays bank has cut India’s GDP forecast to 0.8%, from an earlier estimate of 3.5% for the financial year 2020-21, citing the mounting financial loss due to lockdown to combat the coronavirus pandemic.
The GDP has been revised downwards to 0.0% from 2.5% for the calendar year (January to December), the investment bank said in a report titled ‘A deeper and longer slowdown’.
On Tuesday, India extended the nationwide lockdown for 1.3 billion people till May 3 to stop the spread of the COVID-19 outbreak that has brought majority businesses at a halt.
In the report, Barclays said that the existing restrictions on movement are causing much more economic damage than anticipated.
“We estimate that the economic loss will be close to $234.4 billion (8.1% of GDP), with most of the losses to be incurred in the first part of Q2 2020,” the investment bank said assuming that India will remain under a partial lockdown at least until the end of May.
This is much higher than the $120 billion it had estimated earlier.
The revision comes two days after the World Bank said India’s economic growth is likely to range between 1.5% and 4% in 2020-21.
If a large-scale domestic contagion scenario is avoided, early policy measures pay off, and restrictions to the mobility of goods and people can be lifted swiftly, an upside scenario could materialise in 2020-21, with growth around 4%, the global bank said.
However, if domestic contagion is not contained, and the nationwide shutdown is extended, growth projections could be revised downwards to 1.5%, and fiscal slippages would be larger, the report further said.
Another investment bank Goldman Sachs last week said it forecasts a likely fall in India’s real GDP growth to 1.6% in 2020-21 compared to its earlier projection of 3.3%.
Across the country, Barclays sees major economic losses for the large industrial states such as Maharashtra, Delhi, Tamil Nadu and Punjab.
“Even for states that are likely to experience a faster recovery cycle, such as Kerala, Karnataka, Haryana, while their economic losses will possibly be limited, we think a precautionary increase in savings and reduction in discretionary consumption, especially on travel and recreational services, will weigh on growth rates longer. This drives the downward revision in our growth recovery outlook to show a shallower pick-up in Q3,” the report said.
Despite being characterised as essential sectors, Barclays mentions that the negative impact of the shutdown measures on the mining, agriculture, manufacturing and utility sectors appear higher than expected.
“We also expect a weaker profile for recovery given the deteriorating global backdrop, and rising risk of COVID outbreaks leading to local-level shutdowns. Therefore, we also lower our CY2021 GDP growth forecast to 7.5% from 8.0% previously,” the report further said.
As on April 14, India had reported over 10,800 confirmed COVID-19 cases.
The report also revised its estimated economic losses per week under a full lockdown to $26 billion from $16.6 billion.
This is largely due to higher-than-expected output losses in agriculture, utilities, construction and wholesale & retail sectors, the report added.