India Economics: Growth Estimate Downgraded as Lockdown Extends

21 APRIL 2020

• While the lockdown has been extended in India until 3rd May 2020, the government announced relaxation of several restrictions post 20th April outside of “containment zones”. Despite the generous relaxations, Citi analysts expect a resumption in economic activity to remain challenging while adhering to safely guidelines.
• Citi analysts however remain optimistic that timely policy intervention may be able to avert a demand shock and deliver modest growth in FY21. They revise India’s FY21 GDP growth estimate to 1.7% YoY (from 2.5% earlier) and expect the country’s GDP to shrink 0.2% YoY in 1QFY21.
• Apart from Agri, livestock and fisheries related activities have been allowed in rural areas. Construction, Industrial manufacturing and MNREGA related activities have also been allowed with social-distancing restrictions, given manufacturing and construction together account for ~ 30% of the rural economy and employ ~20% of India’s rural labor force.
Source: CSO, CEIC, Citi Research
• Limited relaxation has been provided outside of rural areas, as ~40% of confirmed Covid-19 have been reported from key urban centers. Apart from essential goods, manufacturing activity has only been allowed in SEZs and industrial townships. Mining and petroleum related activity has been allowed, while construction is permitted only using onsite workers.
• The government also allowed movement of inter-state cargo through rail, air, roads and ports. Services like travel, tourism, entertainment, malls, etc. will however remain shut.
• While testing has been ramped up to >24K per day, India, with a positive rate of ~5%, ranks better than countries like the US (20%), Italy (15%) and Spain (29%). Citi analysts expect most of the restrictions to be lifted by mid-June and expect a ~1-2% of GDP fiscal stimulus to provide support to growth recovery towards the end of the year.