New Delhi: As the Indian economy eagerly awaits a financial package to prevent the COVID-19 pandemic from causing major harm, a new report said on Wednesday that the 21-day nationwide lockdown will result in a direct output loss of nearly 4.5 per cent, with further indirect effects.
Finance Minister Nirmala Sitharaman has said that the government is currently addressing the compliance-related issues and an economic package covering issues of concern to the industry would be announced separately later.
According to Tokyo-based financial services group Nomura, nearly 75 per cent of the economy will be shut down, resulting in a direct output loss of approximately 4.5 per cent.
“Additionally, there will be indirect effects such as the persistence of public fear factor (even after the lockdown ends) — a high risk that the livelihoods of the predominantly unorganised workforce will be hit and a sharp increase in corporate and banking sector stress, which are likely to further weigh on growth is beyond Q2 in H2 2020,” the report warned.
While the states have been largely leading the fiscal charge against COVID-19 so far, the report said it expects the Central government to soon announce a stimulus package of around 0.7-1.1 per cent of the GDP.
“Along with the growth hit and poor tax collections, we expect the fiscal deficit for FY21 (year ending March 2021) to balloon by over 1 per cent of GDP from the 3.5 per cent target set in the budget (more than the escape clause leeway of 0.5 per cent of GDP).”
Monetary policy proactiveness has been missing so far, it said.
However, “we expect at least 50bp of policy easing on or before the April 3 policy meeting, accompanied by a host of liquidity injections and unconventional policy measures to reduce financial sector tightness, including large scale open market operations.”
The government’s concern is that India is reaching the exponential part of the epidemic curve, with the number of COVID-19 cases currently tracking 562 (512 are active, and 11 deaths so far), which is now an average daily growth rate of around 23 per cent.