Cost of Coronavirus lockdown on Indian economy
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Cost of a Lockdown
With 75% of the economy in a 21-day lockdown to halt the spread of Covid-19, investment bank Nomura tracks the cost:
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Why the lockdown
- 23% average daily growth rate of new Covid-19 cases
- 2,506 cases Best case scenario over the next 15 days
- 1.58 lakh cases - Worst case scenario over the next 15 days
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Economic impact
- A total lockdown for a month would take out 8.5% of GDP
- China & Italy have shown lockdowns persist longer than expected
- Public fear would remain even beyond lockdown, slowing recovery
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Banking sector NPAs
- Even before the outbreak, RBI estimated NPAs to touch 10.5% of assets
- 28% of bank assets are retail loans, which have become risky
- Already stressed corporate sector loans expected to worsen
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Impact on fiscal deficit
- 3.5% FY21 fiscal deficit target was overestimation even before the outbreak
- Growth slowdown and lower tax revenue were likey to push it to 4%
- Stimulus package will inflate the fiscal deficit to 4.7%
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Monetary policy
- RBI falling behind in terms of proactive policy
- 50 bp rate cut likely by April & another 65 bp cut by Q2 CY20
- Could also adjust risk weights and capital buffers of banks