A month of national lockdown can eat up 1-2% of GDP: Report

Mumbai: A month-long national lockdown to arrest the spread of COVID 2.0 could shave off 100-200 bps of GDP, leading to a 300 bps risk to annual growth, a brokerage report has flagged while expressing doubts over the ability of local lockdowns to control the pandemic.

The second wave of the coronavirus inflection has caught the government off-guard with the daily cases jumping over 6.5 times in the past 30 days.

With close to 3.53 lakh fresh daily infections, the country is the worst hit globally. Death toll jumped to 1,95,123 as of 8 am Monday, with a daily new peak of 2,812 deaths in the past 24 hrs, according to the government data.

"It remains to be seen if the second wave subsides without a national level lockdown. A month of nationwide lockdown costs 100-200 bps of GDP. This poses a 300 bps risk to our 9 per cent real GVA growth forecast for FY22," Bank of America Securities India economists Indranil Sen Gupta and Aastha Gudwani said in an note Monday evening.

Given this high economic cost, they expect the Centre and the states to try to contain the spread with further tightening of night curfews and localized lockdowns.

They also expect the Reserve Bank to come to aid by funding government's welfare measures like resumption of free food grains to the needy in May-June, for which it needs an additional Rs 26,000 crore or 0.1 per cent of GDP, through OMOs/G-Saps and other liquidity infusing measures to arrest the rise in yields.

They expect the RBI to remain on hold in FY22 and hike rates by 100 bps in FY23.

"To slow rise in yields, we expect the RBI to conduct USD 68.7 billion of OMOs/G-Saps and hike and extend banks' HTM limits by 2 per cent of their books to FY26, and continue forward forex intervention," the brokerage said.

On the vaccination front, they said while 8.7 per cent of the total population has received the first dose, only 1.6 per cent have got both doses.

Global forecasting firm Oxford Economics on Monday revised downwards its India GDP growth forecast for 2021 to 10.2 per cent from 11.8 per cent previously, citing the country's escalating health burden, faltering vaccination rate and lack of a convincing government strategy to contain the pandemic.

Oxford Economics also said that notwithstanding the likelihood of further mobility restrictions, it expects India's targeted lockdown approach, less stringent restrictions, and resilient consumer and business behaviour to mitigate the economic impact of the second wave.

"India's escalating health burden, faltering vaccination rate, and lack of a convincing government strategy to contain the pandemic have prompted us to downgrade our 2021 GDP growth forecast to 10.2 per cent from 11.8 per cent previously," it said.

The global forecasting firm added it expects GDP to contract sequentially in the second quarter.

"But if struggling health systems force more states to resort to stricter lockdowns like Maharashtra, we will likely lower our growth forecast further," it added.

Oxford Economics said India's health system has collapsed in the worst-hit states, with even the national capital Delhi facing acute shortage of oxygen and COVID-19 hospital beds.

"While the official mortality rate has edged lower, it masks a rapidly rising death count. Deaths are now doubling every ten days (as opposed to an average of 29 days in the first wave) and even this figure is likely buttressed by delayed or under-reporting of deaths." it noted.

India is struggling with a second wave of the pandemic with more than 3,00,000 daily new coronavirus cases being reported in the past few days, and hospitals in several states are reeling under a shortage of medical oxygen and beds

The IMF has projected an impressive 12.5 per cent growth rate for India in 2021, while S&P Global Ratings has said the Indian economy is projected to grow at 11 per cent in the current fiscal.

In its last policy review, the RBI had projected a GDP growth rate of 10.5 per cent for FY'22. According to India's statistics office, the economy projected to contract 8 per cent in 2020-21 while the Economic Survey 2020-21 sees 11 per cent growth in 2021-22.