The finish of March was a time to be cheerful as far as the economy was concerned—the GST collections had swelled and it looked like that the debate on the revival was sealed in favour of the economy. However, the disturbing rise in the quantity of virus infections has brought in a sense of déjà vu as governments have reacted in the exact same way in which they did in 2020. Announce lockdowns. It does seem that the lessons have not been learnt. In 2020, it could be mentioned that the occasion was a shock to the globe and therefore we did what every person else did. But this time it shows lack of preparedness, which is not surprising since as the infection instances fell to significantly less than 10,000 per day by February, each authority took credit for the exact same and we assumed that herd immunity had set in and that the second wave was an affliction of the West. It was common Indian hubris speaking.
The lockdown is practically ‘complete’ in Maharashtra, even though key cities like Bangalore, Delhi, Jaipur, Ahmedabad, and so on, have announced evening curfews and have restricted movement of men and women. It is ironical that even though a variety of states had been warning the public of dire action and lockdowns, political expediency took more than when it came to elections in the 5 states and Union territories exactly where none of the guidelines of social distancing had been maintained. Therefore, ambivalence in method has triggered the citizens to doubt the seriousness of such lockdowns. Hence, even though in 2020, in spite of the hardships, there was no criticism against the act of ‘lockdown’, this time scepticism clouds the air.
Economic development depends on consumption, and if men and women can not consume, there is no want to make. Using this believed, one can say that if Maharashtra, which accounts for 15% of GDP, decides to close down with caveats, there is a key threat of household spending coming down. This implies that there is a chain reaction by means of backward linkages which feeds into production lines that have not been banned. But with men and women not permitted to obtain, say, clothes in the state either by means of on line or offline routes, the incentive to make comes down. Therefore, it is not just a case of services getting impacted, but also manufacturing of non-essentials. Hence, the list begins from hotels, travel, entertainment, retail, malls, to industries like textiles, electronics, automobiles, and so on. There are some anomalies in Maharashtra exactly where garages can run, even though shops promoting spare components can not be opened!
From the business enterprise standpoint, the uncertainty is really disturbing. For business enterprise to be carried out, certainty in the guidelines of the game is essential. This is a basic element that defines the ‘doing business’ climate. It has been noticed in Maharashtra, for instance, that taxes had to be paid by the hospitality sector for the new monetary year by March-finish, and then in a couple of days they had been told to close down. Rental lease contracts had been negotiated for the year based on the premise that these enterprises could operate. The services sector will be left questioning how lengthy this lockdown lasts, as encounter shows that even final year no one knew. The initial 21 days drew a lot of appreciation as it produced sense, but quickly it was realised that such lockdowns had to be extended endlessly as the infection prices elevated. What appears superior on paper does not really work the way it is planned.
The challenge today is that even though lockdowns and evening curfews have been announced for a specified period of time, no one is confident about what would be the scenario in the city or state or the nation on April 30. Once the elections finish and the Kumbh Mela culminates, the quantity of infections will rise exponentially supplied men and women are tested, and the quantity of 1.8 lakh new instances per day that was registered lately will look really modest. The challenge truly is what do governments do then? Announce more lockdowns with more stringent measures?
Last year it was noticed that even though a lot of largesse was announced to look immediately after the deprived class which includes migrants, the enthusiasm was lost along the way. While announcements had been produced on money transfers, there had been complaints that this under no circumstances occurred and therefore even the Budget for the central government did not show all these numbers. Sure, administrative challenges had been there on the delivery side as a number of states had been involved, but by November even the announcements stopped. Currently, the Centre is not involved in announcing lockdowns, but states have taken on the part of bringing in the restrictions. Maharashtra has announced a package of about Rs 5,500 crore, which is encouraging. But the crucial query is whether or not this can be delivered to the targeted group in the next 15-20 days? Does such a list of beneficiaries exist or is this an empty announcement? This is essential since after the lockdown is in spot, these who are out of work will need help promptly.
For a nation that is nevertheless struggling to provide vaccines to the public, distributing this quantity will be a large challenge as beneficiaries have to be identified. Hence, this might be a different loan waiver scheme exactly where states announce significant numbers but lastly do not disburse more than 20-50% of the quantity more than a period of time.
India’s GDP for FY22 would be about Rs 145-150 lakh crore as per projections produced by unique agencies. This would imply about Rs 12-12.5 lakh crore a month. The lockdown will impact this month-to-month GDP quantum for confident, and even a 10% reduce-back would imply a loss of Rs 1.2-1.25 lakh crore a month. GST collections are commonly supposed to be 8-9% of this quantity, even though these had scaled up to 10% in March. A one-month semi-lockdown would also imply a loss of Rs 12,500 crore based on the 10% rule. A concern for the banking sector would after once more be the asset good quality since closure of business enterprise, particularly for SMEs, will imply loss of revenue and diminishing capacity to service debt. While there are nevertheless hopes that on account of the lockdown there could be a different moratorium announced by RBI, one can not be as well confident. The receivables cycle of all concerned corporations will take a hit after once more on this score. The other challenge is with employment. There are indicators of migrants after once more returning property as there is worry that, like final year, lockdowns could get elongated and will impact their jobs and incomes.
Therefore, the financial effect of this series of lockdowns will be substantial, even though not as sharp as that of final year since of the scale. Even state budgets will get impacted with fall in consumption and therefore we will be rewinding the clock after more, albeit not being aware of when to let it run in the appropriate path.
The author is Chief economist, CARE Ratings, and the author of ‘Hits & Misses: The Indian Banking Story (SAGE)’. Views are individual