Indian GDP to contract 7.5 per cent if COVID vaccine is delayed, 4 pc in base case: Report

A longer wait for a vaccine against COVID-19 virus may le to a contraction of up to 7.5 per cent in Indian GDP in FY21, a foreign broker said on Monday. Ecomists at Bank of America Securities also revised down ir base case estimates on real GDP within a week, and w expect it to contract by 4 per cent because of a drop in ecomic activity.

It can be ted that multiple efforts to find a vaccine against dreed virus are on both globally as well domestically, but timelines have been anunced yet. Many analysts are expecting Indian ecomy to contract by 5 per cent in FY21 as a result of nationwide lockdowns, with some also estimating a contraction of up to 7.2 per cent in GDP.

"India's real GDP will likely contract by 7.5 per cent if global ecomy has to wait for a vaccine discovery for a year," BofA analysts said, calling this as "bear case".

A base case is most probable case or expected case. While a bear case means a typically pessimistic case. analysts, who were earlier estimating a 5 per cent contraction in worst case scenario, said every month of lockdown is costing 1 percent point from a yearly growth perspective for Indian ecomy. In response, Reserve Bank of India (RBI) will cut rates by ar 2 percent points in FY21, y said.

Citing movement on a proprietary indicator on ecomic activity, it said indicator fell 20.6 per cent in May after 29.7 per cent fall in April. Industrial production contracted by 34.7 per cent in May, atop April's 57.6 per cent, it said, estimating Q1 GDP to contract to 18 per cent. As cases of COVID-19 infections have trebled since country began getting into an unlock phase, present restrictions will get extended to mid-September as against an earlier projection of mid-August, ecomists said, ding a full restart of activities will only be possible by mid-October. Apart from this, several states are imposing localised lockdowns like ones across many urban centres in Maharashtra.

"As a result, we w expect FY21 GDP to contract by ar 1 per cent to 4 per cent," y said.

RBI is estimated to cut rates by 0.75 per cent more in current fiscal as a base case, Centre's fiscal deficit will come at 6.85 per cent of GDP as against budgeted 3.5 per cent and overall fiscal deficit will be at 10.7 per cent, it said.