India may see first contraction in 40 years on lockdown extension

By Vrishti Beniwal

India’s economy may be heading for its first full-year contraction in more than four decades after Prime Minister Narendra Modi extended the world’s biggest lockdown to contain the coronavirus outbreak.

The lengthening of the mandatory stay-at-home period to 40 days from 21 days will result in a direct output loss of more than 8% over that time, according to Sonal Varma of Nomura Holdings Inc.


Varma and Kunal Kundu of Societe Generale GSC Pvt. now predict a decline in gross domestic product for the year to March 2021 of 0.4% and 0.1% respectively. The economy had last contracted in 1980, when GDP shrank 5.2%.

“There will be indirect effects such as the persistence of the public fear factor even after the lockdown ends,” said Varma, head of Asia economics ex-Japan at Nomura. Besides, there will be an “impact on livelihoods of the unorganized workforce, and a sharp increase in corporate and banking sector stress, which are likely to further weigh on growth.”

What Bloomberg’s Economists Say
“A precipitous recession in India is inevitable.”

“We are slashing our fiscal 2021 GDP forecast to a contraction of 4.7%, down 10.7 percentage points from 6% growth we expected before the coronavirus sideswiped the economy.”
-- Abhishek Gupta, India economist

Here are some more comments from other economists:

Aditi Nayar, principal economist, ICRA Ltd.
Sees GDP contracting in a range of 10%-15% in the first quarter, “which would translate to a bleak full year growth band of +/-1%.”
Teresa John, economist, Nirmal Bang Institutional Equities
Says the lockdown could shave off just under 6% of India’s GDP, while cutting her growth forecast to 0.5%. “Moreover, an extended lockdown will also prolong the time for economic recovery.”
Rahul Bajoria, senior economist, Barclays Bank Plc
Combined with the disruption in several service sectors, he estimates economic loss will be close to 8.1% of GDP and is forecasting the economy to grow 0.8% this year. “However, if we are still seeing localized Covid outbreaks, which lead to frequent shutdowns, the scope for the economy to recover will continue to decline.”