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Last Updated : Mar 25, 2020 01:41 PM IST | Source:

Brokerages warn lockdown will lead to 'collapse' of India's GDP, want govt to step in quickly

Prime Minister Narendra Modi has announced a complete lockdown of the country for 21 days to check the spread of coronavirus.

The coronavirus outbreak will deal a huge blow to the Indian economy and the country’s April-June GDP may drop to negative 5 percent year-on-year or even more, brokerages have said.

Prime Minister Narendra Modi, while addressing the nation for the second time within a week on March 24, announced a lockdown of India for 21 days to check the spread of the highly contagious virus.

The lockdown may be extended if infections continue to rise, experts say.


The decision, though imperative, will seriously disrupt business activities and India's already struggling growth will drop to worrisome levels.

The cost

JP Morgan said quantifying the near-term cost of the lockdown was difficult but about 60 percent of the GDP would be significantly impacted.

"Hit to growth is likely to pressure revenues and FY21 fiscal deficit could come under pressure. The government can raise revenue by partially or fully taxing the large oil windfall," the global financial firm said.

Market turbulence could put pressure on asset sale targets, it said.

Deutsche Bank said India's GDP growth will collapse in April-June and may be a negative print of 5 percent year-on-year (YoY) or even more. There was a possibility that the July-September real GDP, too, would be negative.

Global wealth management firm Barclays said a longer and complete lockdown would result in a weaker growth profile.

"We are shaving down our CY20 GDP forecast from 4.5 percent to 2.5 percent and cut FY21 GDP forecast to 3.5 percent from 5.2 percent earlier," Barclays said.

Jefferies, too, had a similar view.

The lockdown would hit near-term growth and a large near-term economic impact would be inevitable. It also raised the probability of a V-shaped recovery, said the brokerage.

The market, it said, had factored in a double-digit EPS decline.​

What can be done

The government and its agencies will have to come out with quick and strong measures to mitigate the impact of the coronavirus and the lockdown on the economy.

While the Reserve Bank of India can focus on rate cuts and easing of compliance, the government can offer some stimulus to keep the engine of the economy running.

A 50 bps rate cut by the RBI is expected but easing monetary conditions would need to be accompanied by regulatory forbearance, JP Morgan said.

Deutsche Bank expects the fiscal stimulus to be about 2 percent of GDP and sees the central bank cutting rates by 100 bps in the coming months.

" The RBI may even look at large OMO purchases, purchase of government bonds and CRR cut," it said.

Saying that the RBI could cut rate by 65 bps in April, Barclays said an additional 100 bps cut was required between June and August to stabilise sentiment.

Kotak Institutional Equities said the government and RBI would need to provide the necessary fiscal and monetary support in general and to parts of the economy in particular. It would be critical to softening the impact of the sharp contraction in economic activity over the next few weeks.

"The government should not worry about the fiscal deficit for FY2021E and provide both income and tax stimulus to the economy in general and vulnerable parts of the economy in particular," the brokerage said.

Kotak recommended direct cash transfer for vulnerable households for three months and the government bearing a portion of employee costs to prevent job losses during the period.

Among tax measures, the brokerage favoured lower corporate tax rate for smaller companies and lower taxes on dividends of up to a certain amount.

Kotak said RBI could cut interest rates by 100 bps to start with and even higher, given that inflation was no longer the primary objective. It should announce forbearance on all MSME and retail loans (for banks and NBFCs) for a period of three months and extend the period if required, Kotak added.

"Although inflation will be high for some time, a period of economic slump will drive down inflation anyway," Kotak said.

India's workforce presented a challenge and fiscal support to the affected workers and businesses would drive faster recovery, Jefferies said.

Disclaimer: The views and investment tips expressed by experts on are their own and not those of the website or its management. advises users to check with certified experts before taking any investment decisions.

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First Published on Mar 25, 2020 01:41 pm
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