Impact on Economy on likelihood of lockdown extension - Karan Mehrishi - Acuité Ratings & Research Limited

"We have already estimated in our previous note that the Indian economy will lose $4.6 billion on each day of the lock down and this will translate to a GDP contraction of nearly 6% in the first quarter. If the pan-India lockdown is extended further by 26 days, there will clearly be additional losses to the economy, which can worsen the GDP contraction in Q1 to double digits. The impact is foreseen on every sector in the economy, but it will further hit some of the services sectors like transport, logistics, aviation, financial services and hospitality. In our assessment, agriculture will be relatively less affected since crop harvesting and distribution is being considered as essential goods and services.

We have projected GDP growth in the band of 2%-3% in FY21 with some downward risks depending on the intensity of the pandemic. Businesses and demand will take to revive even in Q2. Also, with higher Government expenditure and augmented debt issuances, inflation may be a significant challenge for policy makers. However, we don't see the threat of hyper-inflation in the near term since the government is expected to ensure the supply of essential goods and services.

The biggest problem emanating from this lockdown, is its impact on supply chains - especially pertaining to essential item list. This will not only impact large retailers / wholesalers, but small mom and pop shop owners as well, who depends on the supply chain. The administration has to make it a priority to smoothen supply chain disruptions at the earliest."

Source : Equity Bulls

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