SBI slashes India’s growth forecast to 10.4% amid rising lockdowns due to COVID-19 surge

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With India topping the global infection list for the third consecutive day and more states imposing restrictions, SBI Research on Friday cut its growth forecast for the current financial year to 10.4 per cent from 11 per cent earlier.

India reported over 3.34 lakh fresh COVID-19 cases in the past 24 hours.

The report penned by the bank’s Chief Economic Advisor Soumya Kanti Ghosh also suggested that faster vaccination is cheaper on the economy than complete lockdowns, pointing out that the total cost of vaccination is much lower at 0.1 percent of GDP while the lockdowns has already cost 0.7 per cent of GDP.

Now that states are free to buy vaccines directly from the manufacturers from May 1, our estimate for 13 large states shows that the cost of vaccine to inoculate will be only 0.1 per cent of their collective GDP. This is significantly lower than the economic loss in GDP due to lockdown which is already at 0.7 per cent of GDP, Ghosh said.

He further said that given the current circumstances of partial, local and weekend lockdowns in almost all the states, we are revising downwards our growth forecast to 10.4 per cent real GDP and 14.3 per cent nominal GDP in FY22.

Total loss arising from the limited lockdowns is estimated at Rs 1.5 lakh crore; of which, Maharashtra, MP and Rajasthan account for 80 per cent and Maharashtra alone at 54 per cent, he said.

With the entire Maharashtra is in lockdowns till month-end, its Rs 29.8 lakh crore economy will see an erosion of Rs 81,672 crore. However, with 15 of districts under weekend lockdown, the economic impact on MP is seen at Rs 21,712 crore of its Rs 11.3 lakh crore GSDP, and that of Rajasthan, which is also under lockdown till May 3, its Rs 12-lakh crore economy will lose Rs 17,237 crore.

Ghosh’s 0.1 percentage point of GDP loss assessment is based on the fact that this is only 15-20 per cent of these states’ health expenditure Budget assuming half of the population in these states will get vaccinated by the Centre.

These 13 states will have to collectively cough out Rs 1,66,216 crore; of which, UP will have to spend the highest at Rs 32,009 crore, given that it has 13.6 crore people above 18 years who are eligible for vaccination. It is followed by Maharashtra at Rs 26,432 crore for vaccinating 6.9 crore of its people and Rajasthan at Rs 16,269 crore to inoculate 3.5 crore people.

On the impact of the lockdowns on reverse migration of labour in Maharashtra, the report said quoting data from the Western Railway, between April 1 and 12, almost 4.32 lakh people have returned to their home states like UP, Bengal, Bihar, Assam and Odisha from Maharashtra.

Maharashtra is the economically biggest and the most industrialised state contributing 13.9 per cent to the national GDP.

Of these 4.32 lakh, around 3.23 lakh reverse migrated to UP and Bihar alone. The data from the Central Railway shows that around 4.7 lakh reverse migrated to northern and eastern states from Maharashtra.

Drawing parallels with the 1918 Spanish Flu, he said this last deadly pandemic had more deaths in the later waves and, therefore, the focus should be vaccination to avoid larger fatalities later.

Citing the injection to infection ratio, he said this shows that the country made rapid improvement this year but it is still below Israel, Chile and Britain with only a paltry 1.2 per cent of its population inoculated so far.

On the virus hotbeds, he said that among the 15 worst-affected districts (mostly urban and only two are rural), six are from Maharashtra. Overall, these districts contribute around 25 per cent to the national GDP. If we look at the rural districts worst affected, nine are from Maharashtra followed by three from Chhattisgarh, which account for around 3.3 per cent of the national GDP.