Today is the time of uncertainty. COVID-19 cases have surged to an uncontrollable level, no one knows when cases will peak or when it comes. This stress hits the economy hard and is slashing, as it’s working well below its potential The uncertainty surrounding the future course of the pandemic will continue until a vaccine for it is found.
Now the world is trying to get back to its normal routines and adapt to the new life post the lockdown relaxations, the complete resumption seems possible only after the development of a vaccine for the disease. And what happens to GDP is the vaccine is delayed?
The unavailability of vaccine can deteriorate the health of the economy. Further delay in vaccine leads to 7.5% contraction in the Indian GDP in the FY20, cited the economists at Bank of America Securities. They also revised down their base case estimates on the real GDP within a week, and now expect it to contract by 4 per cent because of a drop in economic activity.
Some analysts expect the Indian economy to contract by 5% as post lockdown effect in the worst-case scenario, with some also estimating a decline up to 7.2% in the GDP. Analysts those expect 5% contraction have identified that every month of lockdown cost 1 percentage point from a yearly growth perspective for the Indian economy.
Even though strict nationwide lockdown phase of the country is over, there are still some states like Maharashtra, Tamil Nadu with a rising number of cases that still practise localised lockdowns, due to which economic activities continues in a slow pace. The extension in the lockdown is expected to last till mid-September. As a result of the extended lockdown, economists believe the GDP may contract by another 1 to 4 per cent in FY20.
According to the estimations of Bank of America Securities, RBI is expected to cut down the rates by 75 basis points as a base in the current fiscal. Also, the centre’s fiscal deficit is estimated to reach 6.85% of GDP against the budgeted 3.5% and the overall fiscal deficit may strike to 10.7%.
