Economic cost of mobility curbs, lockdowns at Rs 1.5 trillion: SBI report

The stringent mobility curbs and lockdowns put across key Indian cities will dent the economic momentum and will result in an economic loss of Rs 1.5 trillion, suggests a report by the economic wing of State Bank of India (SBI).

“Total loss is estimated at Rs 1.5 trillion, of which Maharashtra, Madhya Pradesh and Rajasthan account for 80 per cent. Maharashtra alone accounts for 54 per cent,” wrote Dr. Soumya Kanti Ghosh, group chief economic adviser at SBI in an April23 note.

In this backdrop, SBI has also lowered the gross domestic product (GDP) estimates for fiscal 2021-22 (FY22). The revised FY22 projection now stand at 10.4 per cent for real GDP (earlier 11 per cent) and 14.3 per cent for nominal GDP (earlier 15 per cent).

Recently, analysts at Jefferies and CARE Ratings, too, had lowered their GDP forecasts for the current fiscal in the backdrop of the recent developments. CARE Ratings, for instance, cut its FY22 GDP growth forecast to 10.2 per cent from earlier projection of 10.7-10.9 per cent. On March 24, 2021, it had projected GDP growth between 11-11.2 per cent based on GVA (gross value added) growth of 10.2 per cent.

“As localised lockdowns get stricter and more widespread, broader indicators will likely decline more. We cut FY22 GDP forecast by 2.2 percentage points (ppt) to 11 per cent. This assumes half of the states/cities (by GDP) witness a 30 per cent less severe lockdown than previous year for 50 per cent lower days,” analysts at Jefferies wrote in an April 21 note.

Labour migration

Meanwhile, migration of labour from key economic hubs across Maharashtra to their respective hometown poses another risk, especially to the manufacturing sector. SBI estimates pegs the economic loss of around Rs 82,000 crore for Maharashtra, which it expects to increase if restrictions are further tightened.

"According to the data provided by Western Railways (for the period of April 1-12), almost 4.32 lakh people have returned to the states like Uttar Pradesh (UP), West Bengal, Bihar, Assam and Odisha from Maharashtra. Of 4.32 lakh, around 3.23 lakh reverse migrated to UP and Bihar alone. From Central Railways, our estimate indicates that around 4.7 lakh reverse migrated to northern and eastern states from Maharashtra," Ghosh wrote.

Despite this, analysts expect the impact to be short-lived, unless the mobility curbs are widened to impact the broader economy. Those at Nomura, for instance, expect the impact to be felt for the next one-three months and less severe (than in Q2-2020), due to a more pandemic-adept economy. They have pegged GDP growth at 11.5 per cent y-o-y in 2021, up from - 6.9 per cent in 2020, with risks to the downside. 

“Overall, we expect a loss of sequential momentum in Q2-2021, but once the second wave passes (we assume July-September), it should result in a release of pent-up demand in the subsequent quarters. In addition, the economy should benefit from faster vaccinations after June, the lagged impact of easy financial conditions, front-loaded fiscal activism and strong global growth,” wrote Sonal Varma, managing director and chief India economist at Nomura, in a recent co-authored note with Aurodeep Nandi.