HSBC Global Search in its latest report has said a month of lockdown could cost India 5.4 per cent of gross value added (GVA). GVA is value of the total output, excluding intermediate consumption. The report said 50 per cent of the economy would be impacted due to a partial lockdown in contrast to 65 per cent in case of full lockdown.
The second phase of lockdown can be considered partial since the government allowed operations to resume in several key industries. The first phase was a full lockdown. The first phase of the lockdown was started on March 25 and ended on April 14. The second phase started on April 15 will now go on till May 3.
The partial opening of the economy would boost agriculture, (mostly rural) manufacturing, select construction and goods trade due to factors like postponed consumption; inventory restocking demand, and general growth buoyancy India tends to display, it added.
Despite the lockdown, there were some indicators to look forward to. "Manufacturing is doing better than services; rural activity is performing better than urban; and consumption is stronger than investment," the report explained.
On expectations of future stimulus, the report said since the approach so far had been "conventional" rather than "unconventional", the future stimulus could come in form of "more of what has already been done i.e. spending on healthcare, social welfare and small businesses; more rate cuts; and liquidity infusions".
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The government could also launch large open market operation purchases and corporate bonds at the LAF (liquidity adjustment facility) window, it predicted.
Due to the shutting down of the entire country for over a month, the fiscal deficit is likely to rise quickly, about 10 per cent of GDP, the report said. "The government would likely have to tap a myriad of resources to fund our expectation of a stimulus plan of 5% of GDP, comprising revenue shortfalls, healthcare spending, and programmes for individuals and small businesses," the report adds.
Appreciating India's past reforms, HSBC suggested three future reforms India could take -- agriculture marketing reforms; strengthening of rural industry; and fiscal expenditure rationalisation.
As coronavirus cripples the entire world economy, India is also facing the heat, with analysts suggesting drastic fall in its GDP in FY21. Recently, SBI Ecowrap report said India's GDP growth may fall to 1.1 per cent in FY21. Fitch Solutions also cut India's economic growth forecast for FY21 to 1.8 per cent due to the worsening domestic outbreak of COVID-19.