As India announced a further extension of the coronavirus-induced lockdown from Monday onwards, there has been some easing of the restrictions that would allow the least affected areas to return to near-normalcy.
But analysts and economists are worried that it would accentuate the supply disruptions and lead to demand destruction.
The government has designated 130 districts as red zones, including most of the metropolitan cities, which will remain under stringent lockdown. About 284 districts have been classified as orange zones, and the remaining 319 districts as green zones.
Orange and green zone areas will be allowed significant but graded relaxations on the level and kind of economic activity undertaken. However, inter-state transport via trains, flights and roads remains barred.
It is worth noting that urban areas and economically more relevant cities such as Mumbai, Delhi, Pune, Chennai, Bengaluru, Hyderabad and Kolkata are all red zones, hence economic normalcy will take longer to emerge,” said Barclays.
The global research house maintained its India outlook, adding it had factored in an extension in lockdown till June 6 in its previous forecast. “We had also factored in a shift to a partial lockdown scenario from end-April in our last GDP forecast change. While acknowledging some downside risks from a lockdown extension in urban areas beyond June 6, we maintain our 0 per cent GDP growth projection for calendar 2020, and 0.8 per cent for fiscal 2021,” Barclays said.
Some economists expect a near-term contraction in the economy before a gradual pick-up in demand. Though, a lot still depends on how the situation pans out in six months from here on.
“We will have to see how this extension really pans out. There will be some supply side disruptions. We don’t expect activities to pick up immediately. Q1 and Q2 will remain significantly under stress. From the third quarter, we can see a gradual return towards normalcy. Even that will be slower than last year,” said Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank.
India’s economy grew at 4.7 per cent during the October-December period of 2019, i.e., before any Covid cases were detected in the country. The numbers for the January-March quarter are likely to be released in the last week of this month, which may give a glimpse into early effects of the lockdown which came into force from March 25.
A recovery of some sorts is expected now but it will be a slow and grinding process, warned analysts.
“A V-shape recovery is not possible as several sectors will have a long-lasting impact. Since there has been so much demand destruction, consumer discretionary items, which contribute a fair amount towards GDP, are not going to pick up early. It will be prolonged U-shaped recovery with some contractions in the first two quarters of fiscal 2021,” said Bhardwaj.
She said a recovery in Q3 will also depend on government’s policy response. Dalal Street has long been waiting for some economic stimulus from the government.
Vinod Nair, Head of Research at Geojit Financial Services, said it was not a big surprise for the market since it was expecting phase-wise reopening of the economy which is mostly in-line with the latest protocol. "The extension will have a mere impact since the main thesis of the market that the economy will open effectively post June 2020 is largely maintained. But more than that the market has realized a concern, based on latest economic & corporate data, that the cascading effect on the ..
Source:- economictimes.indiatimes.com