The Union government’s guidelines, envisioning a slow return to work starting April 20, will see up to 45% of the economy becoming operational again, up from just 25% during the initial lockdown from March 24 to April 14, economists said.
A patchwork of sectors, focused on the rural economy, essentials as well as services, are set to resume but losses from the lockdown could still be staggering and not everything can start at once on April 20.
The transport, farm operations and rural construction sectors will need the least turnaround time, analysts said.
The relaxations, set to kick in on April 20, are primarily aimed at the agricultural and rural economy to restore the earnings of daily wage earners.
“Our estimates suggest that the partial relaxation will open up a larger share of the economy. Compared with the original lockdown, in which only 25% of the economy was operational, these relaxations can result in roughly 45% of the economy resuming business after 20 April,” Sonal Varma, an economist with securities firm Nomura, said.
“The priority is to save lives while looking to safely restart the economy,” a federal official told HT on April 15, when the Union home ministry issued revised consolidated guidelines on which economic activities will be allowed in non-containment zones.
Another economist, Varshit Shah of Emkay Global, an equities firm, said he expected domestic demand to “bounce back” once the lockdown eases.
The cautious optimism about the economy tiptoeing its way back excludes hot spot districts (there are around 170), which roughly account for over 37% of gross domestic product, or GDP. According to the Union government’s guidelines, starting April 20, key parts of the economy, including agriculture, logistics, infrastructure, e-commerce and factories located outside urban limits, will resume operations in areas with no infections — what the health ministry calls green zones.
The rebooting of these activities is still critically tied to the condition that the curve of coronavirus positive cases begins to flatten.
“If any new area is included in the category of a containment zone, the activities allowed in that area till the time of its categorisation as a containment zone, will be suspended, except for those activities that are specifically permitted under the guidelines of Union ministry of health and family welfare,” the government said.
“Agriculture and manufacture of essential goods will benefit the most from the revised guidelines. This has to be looked at in line with the opening up of the agricultural produce market committee markets, free movement of essential goods, ration shops and no restriction on opening up of establishments for manufacturing essential goods,” Care Ratings said in a report.
Yet, economists have projected staggering losses from a 40-day lockdown of business. The International Monetary Fund on Tuesday slashed its 2010-21 growth projection for India to 1.9% from 5.8% projected in January. Barclays said it saw 0% growth, while the World Bank cut India’s growth forecast to 1.5-2.8% from 6.1% projected earlier.
“In total, the direct economic loss due to the lockdowns is likely to be around 7.5% of GDP,” Varma said. According to a Barclays report, each week of lockdown would cost India $20 billion.
Varma said economic activity could be ruled out in at least in 123 districts where the health ministry has said there is an outbreak . “Assuming that activity commences in the remaining 60% of the districts, our back of the envelope calculation suggests that relaxed guidelines will lead to roughly 45% of the economy becoming operational after April 20,” she added.
Experts also said the economy’s performance will depend on strict containment of new novel coronavirus infections because newer hots pots will pinch output further. “So much depends on how the infection curve pans out,” said DK Joshi of Crisil Ltd, a ratings firm.
Given that new cases haven’t stopped, India could still be on the “exponential part” of the Covid-19 graph, according to Varma.
