write an article on topic india's economy can bounce back after lockdown
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ExplanationIndia is swiftly coming to terms with a rare unforecastable impact event. As we approach April 15, policymakers will have to carefully analyse a tough trade-off – continued lockdown at the cost of longer-term economic devastation, or a rational ‘unlocking’ allowing India to ‘return to work’.
A simplistic way to arrive at the value of the loss in economic activity would be to compute the loss on a daily basis due to the lockdown. Based on pre-Covid-19 projections of India’s GDP, the average daily GDP value for FY2021 was estimated at about $8 billion. A 30-day lockdown would, thus, imply a maximum possible loss of $240 billion. The actual loss, however, would be lower, and a part of the loss could be recouped in H2 FY2020 as latent demand is realised. However, here is a more realistic assessment.
Hit on Consumption Demand
·Durable and semi-durable goods account for about 11% of private consumption (private final consumption expenditure, PFCE) demand.
·Non-durable goods account for about 39% of PFCE and include essential goods, with food & beverages accounting for more than 75%, which is unlikely to be impacted significantly.
·Services account for about 50% of consumption demand and have been the key growth-driver. Demand destruction could play out in services segments in the next few quarters. Unlike durables and semi-durables, consumption in some service segments may see a permanent loss (e.g. cinemas, restaurants, etc).
Analysis of consumer wallets shows that the Covid-19 outbreak could cast a shadow on items equivalent to about 30-35% of India’s consumption. Purchase of durables such as clothing and footwear, furnishings, vehicles and durables for recreation, etc may be postponed. However, expect demand destruction in items such as transport services, recreation and culture, restaurants and hotels and beverages etc, in the immediate quarters if lockdown is not lifted.
In the more benign case, in which activity is hit for only about 30 days and resumes post the current 21-day lockdown, consumption demand could be hit by about 1.6-1.8 percentage points (pp) in Q4 FY2020 and Q1 FY2021. This would translate into a nominal loss of about $13.5 billion.
The worst-case scenario is impossible to arrive at, and is thus ‘unquantifiable,’ given the number of uncertainties and scenarios -- how intense will the Covid-19’s direct impact be on health and lives; how long will it endure; what policy measures are taken to mitigate the impact, etc.
Based on the above caveat, and past experiences of such pandemics, the worst-case scenerio of about three months of lockdown could imply 11.5 pp on Q1 FY2021 consumption growth, as compared to the earlier projections, and drag down India’s overall GDP into negative territory. The loss in nominal terms could be as high as about $6.5 billion in FY2020, and about $45 billion in Q1FY21. This would be crippling in all senses.: