Given the cost of the COVID-19 blockade at $ 120 billion (about Rs 9 lakh crore) or 4 percent of GDP, analysts cut their growth projections on Wednesday and highlighted the need to announce a package.
Analysts say that the Reserve Bank of India, scheduled to announce the first bi-monthly policy review on April 3rd, is ready to lower the rate and should also consider that the fiscal deficit target will be violated.
Prime Minister Narendra Modi announced a three-week full lockdown of the country to prevent the spread of coronavirus infection in the country. Equity markets were in early trade with a fall of 0.47 percent on Wednesday.
British brokerage Barclays said in a note: “We estimate a cumulative close to $ 120 billion or 4 percent of gross domestic product (GDP).”
It specified the cost of a three-week nationwide lockdown at USD 90 billion alone, over and above the lockdown announced by various states such as Maharashtra.
He also said that the RBI is likely to cut by 0.65 percent in the April review and that the interest rates will come down by 1 percent during the year.
Domestic brokerage MK had already congratulated policymakers compared to other countries but said there was little to mitigate the economic impact.
“The Indian government has so far been largely silent on the economic impact from the lockdown, let alone any measures to cushion the hit it,” Economist said.
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The unorganized sector, already under the dual effect of demonetization and the Goods and Services Tax (GST), will be pushed to the brink due to these measures, MK warned.
It suggested soft loans, debt restructuring, and cash transfers for small businesses, as a possible tool the government could adopt as part of the economic package.
Edelweiss said that India has so far outpaced peers in reaction to the crisis policy, which is limited to liquidity support, setting up a task force, and some spending measures by states.
India needs more, he said, indicating that there is plenty of monetary room, but a little option on the fiscal front.
Finance Minister Nirmala Sitharaman on Tuesday, while announcing some measures to help the economy, indicated that the economic assistance package was in the making.
Analysts at Barclays said the government would cause natural disasters in FY15 under the fiscal prudential framework and projected the fiscal deficit to be 5 percent of GDP. 3.5 percent budget target.