Ongoing lockdowns may lead to GDP loss of Rs 5-6 lakh crore in Q1 of FY22, say estimates

The ongoing lockdowns may lead to a nominal GDP loss of Rs 5-6 lakh crore in Q1 of FY22, initial estimates suggest.

The projected losses may amount to cuts and bruises on the economy as against last fiscal's broken bones owing to a historic 24% contraction in Q1 of FY21. In absolute numbers, it translated to Rs 11 lakh crore in lost national output.

While SBI Research pegged the current quarter's nominal GDP loss at Rs 6 lakh crore, Barclays estimates it at Rs 5.4 lakh crore. On balance, the projected real GDP growth could be 10-15%, much lower than RBI's 26.2% forecast.

Economists also warn of growth rate being ground into dust should a third wave hit upon the country in Q3. Such an event could shave off another Rs 3 lakh crore worth output, giving the annual growth rate a quick 2-3% trim and settle at 7-8%. For context, just weeks before the second wave struck last month, growth projections stood at an envious 10-12% and India was making a serious go for it.

"Though the impact of the second wave on the real economy was initially thought to be much limited...in comparison with the first wave, our estimates now indicate that there might be nominal GDP loss of up to Rs 6 lakh crore during Q1, FY22 compared to a loss of Rs 11 lakh crore in Q1, FY21," noted Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI. He believes real GDP loss to be Rs 4-4.5 lakh crore.

According to Rahul Bajoria, Chief India Economist, Barclays, although infections were receding, the related economic costs have been larger due to stringent lockdowns. "After a reasonably stable April, the economy experienced a sharp decline in activity in May, as is evident in high-frequency data. While we continue to believe the lockdowns will last only until the end of June, in our new base case, we now estimate economic losses of $74 billion (Rs 5.4 lakh crore), all of it contained in Q1, FY22," he noted.

Barclays went a step further considering the potential fallouts of a likely third wave, which could accentuate economic costs by at least another $42.6 billion (Rs 3.1 lakh crore) in the event of similarly stringent lockdowns imposed for eight weeks. Under this pessimistic, 'bear case' scenario, it revised growth estimates downward by a further 150 bps to 7.7% in FY22.

Similarly, Anubhuti Sahay, Head, South Asia Economic Research, Standard Chartered Bank, India believes Q1 to be the most-affected. That said, she believes most economic indicators remain higher than the lows seen last fiscal. A favourable base effect, improved global demand and prospects of a large proportion of the population being vaccinated in the second half of FY22 will support activity, she concluded.