Analysts see chances of lockdown-led recession

■ Only 25-40% of economy is operational now

The pandemic-driven lockdown is likely to cripple domestic economic activities across the value chain, potentially pushing the economy into a recession after three decades.

According to experts despite the fiscal and monitory measures, the impact of lockdown would be felt through several channels owing to weakening domestic demand and disruption in supply chain and financial markets. The lockdown is causing significant disruption across multiple sectors, including manufacturing, oil and financial.

By various estimates, only 25-40 per cent of the economy is currently operational.

Reports say the restrictions on commercial activities and people gatherings would strongly impact global and domestic growth from this month onwards.

Many brokerage houses are predicting a bleak scenario for Indian GDP growth.

Bank of America Securities has sharply cut the June quarter growth forecast by 90 bps to a low of 3.1 per cent and the fullyear India GDP target by 100 bps to 4.1 per cent for FY21, citing an almost certain global recession due to the Covid-19 pandemic.

"We estimate a month's shutdown will cost about 50 bps of annual GDP," said Bank of America Securities, adding that it expects the Indian economy to come out of this slump only by FY22 when the GDP may print in at 6 per cent.

Explaining the rationale for the doom-scenario, it said a global recession is a reality and the general shutdown in India is seen extending to the end of April and not mid-April.

Experts believe India's informal sector, the backbone of the economy, will be the hardest hit.

"Just as everywhere else in the world, the Indian economy is bracing for the fallout (from) this unprecedented event. We expect the lockdown to dramatically reduce GDP in...subsequent quarters, while there will be prolonged economic gloom throughout the rest of the year," said Prakash Sakpal, Asia economist at ING.

According Dun & Bradstreet's latest Economy Forecast, the probability of countries entering into recession and companies going bankrupt has increased and India is not likely to remain "decoupled" from the global meltdown.

Brokerage to firm

Motilal

Oswal has warned that India could witness its first recession in about three decades amidst the coronavirus lockdown.

"With two consecutive quarters of GDP decline, India could see its first recession since the 1990s," the brokerage house said in a note.

According to its sensitivity analysis of the adverse impact of lockdown, a single day of complete lockdown could shave off 14-19 basis points (bps) of annual growth and 55-75 bps from quarterly growth.

It implies that with seven days of complete lockdown and 8 days of partial lockdown, real GDP could decline by about 3 per cent year-on-year in the January-March quarter.

If this happens, this would be the first degrowth in the country's GDP numbers since the government started publishing quarterly numbers from Q1 of 1997-98. With 14 days of complete lockdown in April, the brokerage expects the situation to deteriorating further. Assuming things normalise from mid-May, GDP could decline by 12.2 per cent year-on-year in AprilJune.