India can afford extended lockdown but only with a stimulus
As speculation is rife over the possible extension of the national lockdown, economists and industry insiders have contended that India can afford such a move given that a robust fiscal policy response for the industry is initiated.
At present, India is under a lockdown which will last till midnight April 14. Consequently, ratings agencies have cut the country's GDP forecast and many companies have instituted pay cuts.
This has led several leading industry bodies to request the Centre for a relief package ranging from Rs 9 - Rs 11 lakh crore. They have also recommended to the Centre to relax the lockdown in a graded manner which will give preference to the manufacturing, logistics and transportation sectors to be the first to open up.
However, the rising number of Covid-19 cases and state government's reluctance in relaxing the lockdown due to the fear of a faster spread of Coronavirus infection has led to speculations that this phase might get extended by another 15 days.
Many economists and industry insiders told IANS that curbing the spread of Covid-19 should be the top most priority; nonetheless, a robust stimulus package is also needed to curtail the economic fallout of the extended lockdown.
"The loss of economic output will be significant amid restricted economic activity. While India has taken stringent steps to contain the pandemic, the fiscal policy response has been tepid and is yet to cover the SME sector, which generally is more vulnerable during economic downturns," Edelweiss Securities' Lead Economist Madhavi Arora told IANS.
"There could be supply side shocks in some food items which could temporarily spike inflation. However, given a sharp growth downturn, the domestic demand will see a significant correction, which would put immense downward pressure on core inflation."
Currently, the lockdown has dealt a heavy blow to commerce and led to temporary closure of shopping malls, dine-in restaurants, grounding of aircraft, shutting down of factories and deserted market places.
"India's economy will lose $4.6 billion on each day of the lockdown and this will translate to a GDP contraction of nearly 6 per cent 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," said Karan Mehrishi, Lead Economist at AcuitA¿ Ratings & Research.
"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."
According to Rajat Bahl, Chief Rating Officer, Brickwork Ratings: "With the current lock-down the GDP growth is not expected to be above 3 per cent compared to the earlier estimates of around 5.5 per cent for FY21."
"Any further extension of the lock-down will have an even sharper impact on the economy and businesses in many sectors will find it difficult to absorb the shock."
Another challenge facing the government would be to replenish the millions of 'Mom and Pop' stores whose supplies are nearly depleted.
Unlike the western economies, where major retail chains have massive capacity to stock a large number of items of a longer period, India's system made-up primarily of 'Mom and Pop' stores lack this type of stocking capacity."The biggest problem emanating from this lockdown is its impact on supply chains - especially pertaining to the essential item list," Mehrishi said.
"This will not only give impact to large retailers or wholesalers but small mom and pop shop owners as well, who depend on the supply chain. The administration has to make it a priority to smoothen supply chain disruptions at the earliest."
Nevertheless, key issues like harvesting and processing of crops, sowing for the new agriculture season, immediate travel needs of patients suffering from other diseases, OPD services and supplies of bulk non-essential but important daily use items would also need to be considered by the Centre, if the idea of an extension is entertained.
"While no country can afford continued lockdown for some more time if the need of the hour is containment then it makes sense because it is about human lives and without human lives there is no commerce or economy," Sridhar V, Partner, Grant Thornton India LLP, told IANS.
"The impact of continued lockdown will leave no sector untouched and it will at the same time put the common man through more hardship. Hence it will be good to explore if there are any other alternatives like phased approach... Businesses and the government should look at mechanisms which will help the economy through fiscal and other measures."
On relaxing the lockdown, many stakeholders opined that this should be done in a graded manner.
"Human life should be given the priority and based on the number of infections the government should be able to take the best decision," Dr Sudhir Kalhan, Chairman, Institute of Minimal Access Metabolic Bariatric Surgery, Sir Gangaram Hospital. He is also the Chairman of industry body Assocham's National Council on Healthcare.
"However, relaxing the lockdown through a graded manner is seen as the best option. Certain hotspots, where there are higher prevalence of this infection can be quarantined for a longer time, while in other areas graded relaxations like opening of factories and construction work can be allowed so as to protect the livelihood."
"India it seems has flattened the curve. This has given us time to be well prepared to deal with any contingency."
The Covid-19 outbreak started in China in December 2019 has morphed into a global pandemic, affecting 203 countries, over one million people and increasing rapidly - European countries, North America and Asia being severely impacted. IANS