Those at Barclays Research said in a 14 April note that the loss of output due to shuttered factories and closed offices works out to about $26 billion per week. This is far higher than the $16.6 billion it had estimated on 24 March, when the country-wide lockdown was first announced.
As a result, they now expect the overall hit on the economy to be $234.4 billion (or 8.1% of GDP), nearly double earlier estimate of $120 billion. Most of the losses are expected to be incurred in the June quarter. The estimate could well be revised further, depending on when various lockdowns and restrictions are eased. The current estimate assumes easing of restrictions by early June.
Considering the domestic lockdown until 3 May, Nomura Financial Advisory and Securities (India) Private Ltd puts India’s 2020 GDP growth at a negative 0.5%, as per a note on Tuesday. Barclays estimates zero growth for the year.
In an earlier note, Nomura had said India’s GDP could shrink 2.6% for calendar 2020 in a worst case scenario, which assumed a full blown credit crunch globally and a market meltdown in the second half of the year.
The lockdown to reduce covid-19 spread have been both a demand and a supply shock to the economy. Indians cannot spend because of social distancing and the physical restrictions mean factories are running at their lowest capacity.
To be sure, GDP growth is difficult to arrive at given that a lot depends on the timing and the magnitude of a fiscal stimulus. “The estimates that suggest a negative GDP growth are arrived by just linear assumptions. There are many moving parts. Public spending and its multiplier effect is one of them," said an economist requesting anonymity.
That said, economists noted that even if the lockdown is lifted, consumption of some services would be permanently lost. “You cannot have two haircuts once barber shops open," said the economist quoted above. Also, wary consumers won’t throng restaurants immediately, resulting in a stretched demand deceleration. “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" Barclays said in the note.
The national lockdown notwithstanding, covid-19 cases are mounting in India. What should worry more is that the economic cost seems to be rising faster.