How Lockdown extension will impact Indian economy? We tried to explain

It doesn’t take to genius to know that social and economic lockdown in a country could hit the economy very hard. The supply chain of the country is severely disturbed including production and distribution of goods and services, except for the essential items that are exempt.

Indian economy was already reeling under a demand depression, increasing unemployment rate, and lowering of industrial output and profits, all of which happening together for several quarters now, a break in supply chain will deliver a massive blow, jeopardizing social and economic wellbeing of 1.3 billion people and growth prospects of the country.

India’s GDP rate has continuously fallen since Q4 of FY18. We were growing at a pace of 7.1 n Q1 FY19, 6.2 in Q2 FY19, 5.6 in Q3 FY19, 5.8 in Q4 FY19, 5.6 in Q1 FY20, 5.1 in Q2 FY20 and 4.7 in Q3 FY20.  The economy hadn’t even recovered from two shocks – 2016 demonetisation and 2017 GST rollout and this coronavirus COVID-19 has come to haunt the economy of the country.

According to Acuite Ratings & Research Ltd, Indian economy loses USD 4.64 billion every day because of the lockdown that shut businesses and stopped all modes of transport including flights. In total India will lose GDP loss of almost USD 98 billion.

Now, if the lockdown in extended for the same amount of days, it will cost another USD 98 billion to India. Looking at the trends of increasing Coronavirus cases, India will have to go for partial or complete lockdown for 1 more month to flatten the curve.

A report by KMPG suggests that India’s growth rate can dip below 3 per cent if the COVID-19 continues to spread. It predicted that if the pandemic ends by the April-end and mid-May then, GDP growth rate may be recorded in the range of 5.3 per cent to 5.7 per cent. If India controls the spread of the virus but there’s a significant global recession, the growth may fall between 4 per cent to 4.5 per cent.

It also predicted that amongst the major sectors, apparel and textile production is likely to fall by 10 per cent to 12 per cent in the April-May June quarter of FY21.

The disturbance in global supply chain can increase the price of sourcing of auto components. A steep fall in consumption of non-essential goods is expected due to the abrupt stop of urban activity. Internal supply chain restrictions and the exodus of migrants could be another obstruction for the recovery of the petrochemical sector.