Rs 40,000 crore dent on Indian economy; explained -

Rs 40,000 crore dent on Indian economy; explained

Lockdown curbs put in place in Maharashtra to stem the further surge in COVID-19 cases can dent India’s economic growth. Disruption in the country’s largest regional economy and most industrialised state can undermine India’s overall growth.

Maharashtra has been contributing over 50% to the daily coronavirus cases nationally with over 47,000 new cases reported on Monday, April 5. The state reported 57,074 novel coronavirus cases on Sunday, April 4, its highest single-day spike ever since the pandemic began last year.

To mitigate the situation, the Maharashtra government imposed a lockdown which entails complete shutdown at nights and on weekends, and limited activity during weekdays. The measures are in place until April 30.  

The rising cases and probability of more restrictions in Maharashtra pose a big threat to businesses and the economy at large. But how?

Also Read: Maharashtra imposes night curfew, weekend lockdown amid COVID-19 surge

Dent in the Indian economy

Looking at the ramifications of the restrictions put in the state, the “radical” lockdown decision taken by the Maharashtra government will have an economic impact of Rs 40,000 crore. Hotels, trade, and transport sectors in the state are going to bear the biggest dent, according to Care Ratings.

The ratings agency further stated that the loss of economic activity will have a 0.32% impact on the GVA (Gross Value Added) at the national level. It also revised down its national GDP growth estimate to 10.7 – 10.9% from 11 – 11.2% given a week ago.

“…with FY22 starting on a sombre note with the lockdown fully in place for Maharashtra and to a lesser extent in other states, overall production and consumption would be affected,” the agency said.

The dip in output by around Rs 40,000 crore in the case of Maharashtra would lead to a decline in Gross value added (GVA) growth by 0.32% at the overall domestic economic level, Care noted.

Out of the projected Rs 137.8 lakh crore of GVA at the country level projected for FY22, Maharashtra would account for around Rs 20.7 lakh crore, which will now decline by around 2% due to the lockdown, the ratings agency stated.

It explained that the loss of income is based on the relative share of Maharashtra in various sectors, and the one-month impact of lockdown/restrictions on them.

Also Read: Maharashtra COVID-19 lockdown rules: Restaurants, offices, malls – what’s allowed, what’s not

Loss to trade, hotels, transport

From a sectoral perspective, Care Ratings said trade, hotels, and transport will bear a Rs 15,772 crore hit, followed by financial services, real estate, and professional services which will see a loss of Rs 9,885 crore, and public administration at Rs 8,192 crore.

Terming the measures adopted by Maharashtra as “radical,” it said the state is the largest in terms of Gross State Domestic Product (GSDP) and has a share of around 15% in GVA, followed by Tamil Nadu, Gujarat, Uttar Pradesh, and Karnataka.

Impact on consumer demand

As the movement of people has been curtailed to a large extent, overall consumer demand would also get impacted affecting certain segments in manufacturing, Care said.

Lesser activity in most segments will affect power consumption, and hence the overall production of electricity as well, it said, adding that even the pace of construction will slow down, and new projects will not be taken up.

Restrictions on the functioning of non-essential shops are likely to impact the discretionary retail segment, while e-commerce platforms are expected to benefit to a limited extent, it said.

Also Read: Sensex closes 870 points lower as record Covid-19 cases, Maharashtra lockdown roil investor sentiment

Maharashtra’s contribution to India’s GDP

The average share of Maharashtra’s contribution to India’s nominal GDP is the highest among all states at 14.2%, according to the state economic survey for FY21.

As per the advance estimates, Maharashtra’s economy is expected to grow by (-) 8.0% during 2020-21. Due to the impact of the COVID-19 pandemic on Trade, Repairs, Hotels & Restaurants and Transport sectors, the services sector is expected to grow at (-)9.0%.

Meanwhile, the ‘Agriculture & allied activities’, ‘Industry’ and ‘Services’ sectors for the state are expected to grow by 11.7%, (-)11.3% and (-)9.0% respectively.

Also Read: Indian economy well prepared to handle second wave of COVID-19: FinMin

The ‘Manufacturing’ and ‘Construction’ sectors, as per the survey, were hit hardest and are expected to grow at (-)11.8% and (-)14.6% respectively, due to which ‘Industry’ sector’s growth is expected to be (-)11.3%.

As per the advance estimates, nominal (at current prices) GSDP for 2020-21 is expected to be Rs 26,61,629 crore, and real (at constant 2011-12 prices) GSDP is expected to be Rs 19,62,539 crore.

Nominal GSDP of Maharashtra is expected to decrease by Rs 1,56,925 crore during 2020-21 as compared to 2019-20. Meanwhile, per capita state income during 2020-21 is expected to be at Rs 1,88,784.

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