Barclays pegs India's FY22 GDP growth at 7.7% in bear-case scenario

Our pessimistic tail-risk scenario assumes another wave of infections and a two-month period of restrictions that disrupt economic activity, Barclays said

Barclays has pegged India’s economic growth for fiscal 2021-22 (FY22) – as measured by gross domestic product (GDP) – at 7.7 per cent in the bear-case scenario, if the country is hit by the third wave of the Covid pandemic going ahead. The economic cost, it believes, could rise by at least a further $42.6 billion, assuming another round of similar stringent lockdowns are imposed across the country for eight weeks later this year.

After factoring in recent developments, Barclays has pegged the economic cost of the latest shutdowns at $8 billion per week in May, up from $5.3 billion per week in last two weeks of April, and well above the $3.5 billion a week estimated early in the second wave. “We believe these economic losses will remain steady at $8 billion a week through the month of May, but expect them to ease from June,” Barclays said.

Under this pessimistic, ‘bear-case’ scenario, Barclays estimates GDP growth would be lowered by a further 150 basis points (bp), dragging FY22 growth down to 7.7 per cent y-o-y. The bulk of the economic loss, it said, will be felt in the first (April - June) quarter of FY22.

“Our pessimistic tail-risk scenario assumes another wave of infections and a two-month period of restrictions that disrupt economic activity in the second half of calendar year 2021 (H2-21), evenly split between the third and the fourth quarters (Q3 and Q4). In this scenario, we estimate that the total economic loss would rise to $117 billion, or around 3.75 per cent of GDP,” wrote Rahul Bajoria, chief India economist at Barclays in the report coauthored with Shreya Sodhani.

However, for now, they have further trimmed FY22 GDP projection to 9.2 per cent from 10 per cent earlier (11 per cent before the outbreak of the second Covid wave). Since most of the economic disruption of the second wave, Barclays feels, will be felt in the first quarter of the current fiscal (April – June), they have lowered the GDP growth forecast for the quarter to 15.4 per cent year-on-year, compared with their previous estimate of 21.6 per cent, and 28.5 per cent originally.

“The economic costs of the recent surge in cases are rising rapidly. After a reasonably stable April, the economy experienced a sharp decline in activity in May, as is evident in high-frequency data. While we continue to believe the lockdowns will last only until the end of June, in our new base case, we now estimate economic losses of $74 billion or 2.4 per cent of the GDP, all of it contained in Q2 21 (April-June),” Barclays said. CLICK HERE FOR CHART

The economic impact of the second wave on states, according to Crisil, will be determined by the Covid caseload, nature of lockdowns, structural composition of output (across sectors/regions) and the pace of vaccination. Karnataka, Kerala, and Delhi, which are some of the most affected during the second wave and have also seen large declines in mobility during this period, have higher dependency on contact-based services in their output, making them more vulnerable, Crisil said.

“The magnitude and impact of the second wave along with a widely speculated impending third wave will mean that exit from lockdowns will be guarded and gradual at best. As such, we expect growth recovery to look more U-shaped in FY22 versus V-shaped in FY 21,” wrote Shubhada Rao, founder, QuantEco Research in a co-authored note with Yuvika Singhal and Vivek Kumar, their economists.