Maharashtra lockdown to dent FY22 GVA growth by 0.32%: CARE Ratings

The stricter norms put in place in the wake of rising coronavirus cases in Maharashtra would lead to a dip in gross value added (GVA ) growth by 0.32 per cent at the overall domestic economy level in the financial year 2021-22 (FY22), believes CARE Ratings.

It had earlier estimated growth of 10.24 per cent in GVA for FY22 for the Indian economy towards the March-end, where it was assumed that there would be return to normalcy during the year. However, with FY22 starting on a somber note and the lockdown fully in place for Maharashtra and in restrictions in other states, CARE Ratings believes the overall production and consumption would be affected.

“Intuitively, out of the projected Rs 137.8 trillion of GVA at the country level that we projected for FY22, Maharashtra would account for around Rs 20.7 trillion, which will now decline due to this lockdown,” wrote Madan Sabnavis, chief economist at CARE Ratings.

Maharashtra, according to reports, is the largest state in the country in terms of gross state domestic product (GSDP) and has a share of around 15 per cent in GVA, followed by Tamil Nadu, Gujarat, Uttar Pradesh and Karnataka. While these states have also put in place restrictions, they are not of the same magnitude seen in Maharashtra.

“Against these new guidelines, our projections are that around Rs 40,000 crore of GVA will be impacted based on a single month of lockdown. Any extension of the same will result in further loss of output from the state,” CARE Ratings said.

This loss of income, the ratings agency said, is based on the relative share of Maharashtra in the various sectors and the one-month impact of closedown/ restrictions on them. The assumptions of loss of output would vary between 10-50 per cent for the sub-sectors depending on the extent to which their GVA would be affected due to the lockdown.

While the restrictions on functioning of non-essential shops is likely to impact the discretionary retail segment, e-commerce platforms are expected to benefit, albeit to a limited extent.

Silver lining

Despite the developments, analysts at Nomura are not a worried lot yet. While select contact-based services (e.g., hospitality) and transportation are likely to be hit, they remain operational at lower capacity levels, which they believe will cushion the overall impact of the second wave on the economy.

Moreover, the country is in the process of vaccinating citizens as compared to the same time in 2020, when the vaccine was not available. As such, the rest of the economy – agriculture, industry and even services such as construction, communication, trade – should remain largely unaffected even if Maharashtra has imposed curbs, believe analysts at Nomura.

“Our estimates suggest that the sectors ‘at-risk’ account for less than 6 per cent of the economy. Second, firms and consumers have rapidly adjusted to the new normal and the relationship between (lower) mobility and (weak) economic activity has been weakening over time. The ultra-high frequency data for March and early April, released since the renewed lockdowns were announced, seem to largely corroborate this," wrote Sonal Varma, managing director and chief India economist at Nomura, in a recent co-authored note with Aurodeep Nandi.