Extended Lockdown To Cause Loss Of $234.4 Billion Indian Economy: Barclays

Couple of hours after Prime Minister Narendra Modi announced the extension of the 21-day day nationwide lockdown to 3 May, citing the need to arrest the growth in coronavirus infections, British brokerage Barclays said that it will inflict an economic loss of USD 234.4 billion.

The brokerage in its note on Tuesday also said that this lockdown will result in a stagnant GDP (Gross Domestic Product) for the calendar year 2020 and when seen from a fiscal year perspective, will rise 0.8 percent in 2021.

Earlier, Barclays had projected an economic cost of USD 120 billion for the three-week lockdown between 25 March and 14 April, which has now estimated it to balloon up to USD 234.4 billion.

It also earlier expected India to clock a 2.5 percent growth in the calendar year of 2020, which has now been projected to be zero, while the FY21 growth has been revised down to 0.8 percent from the 3.5 percent.

"As India heads into a longer complete shutdown until May 3 to combat the rising number of COVID-19 cases, the economic impact looks set to be worse than we had expected earlier," the brokerage said.

Noting that while India is still not officially calling the infections to be in the community transmission stage, the existing restrictions on movement are causing much more economic damage than anticipated. In particular, the negative impact on the "essential sectors" of mining, agriculture, manufacturing and utility sectors appears higher than expected, it said.

The brokerage said while arriving at the numbers, it has assumed that the lockdowns end by early June, followed by a modest rebound in activity, reflecting inventory rebuilding across certain sectors.

If the COVID-19 outbreaks in a localized area continue leading to frequent shutdowns, the scope for the economy to recover will continue to decline, it warned.

During his announcement, Modi hinted at relaxations in unaffected areas from 20 April, but added that this will be based on strict monitoring.