Intelligent lockdown exit plan needed to prevent growth collapse: SBI study

Going by past experience, recovery from recession often tends to be slow and takes five to ten years to reach the former peak levels of economic activity, the report said

India needs to implement an intelligent lockdown exit strategy to prevent irreversible growth collapse, SBI said in a research report on Saturday.

India's economic growth slipped to an 11-year low of 4.2 per cent in 2019-20 and to 3.1 per cent in January-March, the lowest in the last 40 quarters.

The nation-wide lockdown to prevent the spread of coronavirus with effect from March 25 has hit economic activities. The fourth phase of the lockdown is set to expire on Sunday.

"We now believe that we should implement an intelligent lockdown exit strategy as the discussion has moved from the debate between lives and livelihood to also between lives and lives as an elongated lockdown will only prolong irreversible growth collapse," SBI's research report 'Ecowrap' said.

Going by past experience, recovery from recession often tends to be slow and takes five to ten years to reach the former peak levels of economic activity, it said.

 

Commenting on the GDP data released on Friday, the report said the loss of economic activity due to the lockdown in the last few days of March has dragged GDP growth to a 40-quarter low of 3.1 per cent in the fourth quarter of 2019-20.

With this, the full year 2019-20 GDP growth comes to 4.2 per cent (11-year low) compared to 6.1 per cent in the preceding financial year.

In terms of sectors, the only silver lining was agriculture, it said.

'Agriculture and allied activities' grew at 4 per cent in the fiscal ended March 2020, compared to the year-ago growth of 2.4 per cent.

However, the Central Statistical Office (CSO) has significantly revised the previous quarters' growth rates (compared to third-quarter release) which is "quite puzzling and raises questions about data quality and remarkable volatility in the new series and we believe that a methodological note from CSO explaining the frequent revisions will be very useful", it added.

In fact, in February the quarterly numbers underwent significant upward revisions and such numbers have now been steeply revised downwards by an almost equal amount, within a span of three months, the report said.

 

While it is customary to change the quarterly numbers in May when the third estimate is released, the extent of such revision shows that the loss in the fourth quarter because of the lockdown may have possibly been evenly distributed across quarters, that is Rs 1.18 trillion loss estimated and distributed across quarters in 2019-20, it said.

"On an unchanged Q1, Q2, and Q3 numbers, the Q4 growth comes at 1.2 per cent. As per our calculation only 18 per cent of GVA is exempted from the lockdown and CSO may release data for that segment only for a large part of Q1FY21, and hence we cannot rule out data issues even for Q1," the report said.

"We would like CSO to come out with a methodological note" explaining the reasons why the data has become so volatile in the last two-three years, it added.

"Is it because the economy is undergoing a structural change that CSO is not able to capture? These are questions that CSO can only provide an answer," it said.

The report noted that as the government has extended statutory timelines for submitting the requisite financial returns, these estimates are thus based on whatever data is available.

It expects significant revisions in both quarterly as well as annual numbers in August when the data on first quarter of the current fiscal would be released.