New Delhi: London-based Financial services company and investment bank Barclays has cut its growth forecast for India to zero per cent for the 2020 calendar year from the earlier projection of 2.5 per cent for the same period. The new projection came after India extended the lockdown period to May 3 to prevent the spread of coronavirus. Barclays said that the economic fallout due to the extension of the lockdown will be much worse than it had earlier said.
“While India’s COVID-19 outbreak has not officially reached the community transmission stage, we believe the existing restrictions on movement are causing much more economic damage than anticipated. Despite being characterised as essential sectors, the negative impact of the shutdown measures on the mining, agriculture, manufacturing and utility sectors appears higher than we had expected,” Barclays said in a new report released Tuesday.
Barclays pointed out that the economic loss is expected to be close to USD 234.40 billion assuming India will be feeling the effects of lockdown till the end of May. This amount is approximately 8.1% of the GDP and is a huge amount indeed. “This is much higher than the $120 billion we had estimated earlier for roughly the same time period previously,” Barclays said.
Barclays said that industrial states like Maharashtra, Tamil Nadu and Punjab will suffer huge economic losses due to the lockdown and it will take them a substantial amount of time to recover from it. “This is a direct reflection of the high COVID-19 case counts in these states, and lockdowns that are likely to persist across several sectors and for longer time periods than in the rest of the country,” Barclays mentioned in its report.
Even for states that are likely to experience a faster recovery cycle, such as Kerala, Karnataka, and Haryana, while their economic losses will likely be limited, a precautionary increase in savings and reduction in discretionary consumption, especially on travel and recreational services, will weigh on growth rates longer, Barclays said. “This drives the downward revision in our growth recovery outlook to show a shallower pick-up in Q3,” the financial services company added.
Barclays also asserted on the fact that quickness with which the Indian economy can recover will depend on the policy support by the government. “Our trajectory of a slower recovery factors in the only modest fiscal stimulus unveiled by the government up to now. We think this is unlikely to offset the negative impact on ‘animal spirits’ caused by relative inactivity for a long period. Major policy interventions, if taken, could, however, change the outcome and bring about a faster upswing after the lockdown opens,” the report said.
Agencies