Localized lockdowns likely to hit India’s GDP growth

Economists warn that localized lockdowns the country due to the surge in COVID-19 positive infections will hit India’s GDP growth in the quarter ended June. HSBC predicts India’s year-on-year GDP growth to fall back into negative territory after recording a marginal 0.4% increase in the quarter ended Dec. 2020.

Pranjul Bhandari, HSBC chief India economist, in a report highlighted that the growth cost of these lockdowns could be about 1% of the country’s GVA in the June quarter and could rise further, if they are extended or replicated by other states. “Our recovery tracker has already fallen by 10% from the February high. Urban unemployment rates are on the rise, and high-touch services have been impacted, while the goods trade has held on a shade better.”

HSBC, as per the report, expects March quarter GDP to shrink 2.3% year-on-year versus a 0.4% growth in previous quarter. The negative momentum will continue in the first quarter ended June 2021 as quarter on quarter GDP growth will be negative though year-on-year growth could still be positive due to a statistical base effect after a -24.4% degrowth in the same quarter  last year. It said it remains to be seen if the second wave subsides without a national lockdown and noted that Maharashtra, which contributes over 16% of national GDP is already under lockdown till the end of the month as the state has more than half of the new cases.

Moreover, the Nomura India Business Resumption Index, which tracks a set of high-frequency economic indicators including mobility, has fallen nearly 16% below the pre-pandemic level. Reports say the Index had slipped to 83.8 for the week ended April 18 compared to 88.4 a week ago. It suggests that business activity is rapidly declining in India due to stricter lockdowns. Sonal Varma and Aurodeep Nandi, Nomura economists, in the report said there is also a risk of mobility curbs spreading to the wider economy.

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Businesses dealing with tourism, hospitality, restaurants, aviation and automobile etc. are feeling the impact of the fresh restrictions and lockdowns amid the surging cases across the country. And now construction and industries are set to be hit as migrant labourers, overcome with uncertainty, are heading back to their hometowns and villages because of the lockdowns.