Oct-Dec growth to be flat at 4.5%; virus impact may come in with a lag: SBI report

The impact of the deadly coronavirus on India could happen with a lag, as the economic impact is expected to accrue from supply chain risk, a State Bank of India (SBI) report has said.

“We are worried that the impact of coronavirus on India could now happen with a lag. The outbreak is now expected to cause a growth erosion of 100 bps in China alone. New hotspots have emerged in South Korea (977 cases) and in Italy (229 cases) and these will result in more quarantines, border closures and disruptions in economic relations,” the SBI research report said.

“Thus, the cost of death even though might be limited, the economic impact could be significantly large. Although number of cases of COVID-19 in India are less, the economic impact is expected to accrue from supply chain risk which may link up with exports as in pharmaceutical sectors,” the SBI report added.

More crucially, data for the April-December period of 2019 for India’s imports shows that there are 19 HS categories in which China has more than half the share of imports and these are mostly consumer goods, it stated.

“With China, in the grip of coronavirus, immediately finding other markets for imports of these commodities is thus going to be difficult. This can impact local importers and in turn consumers adversely,” the report said.

According to the SBI report, its composite leading indicator (index of 33 major leading indicators) suggests that gross domestic product (GDP) growth will remain flat at 4.5 per cent during Q3 of financial year 2019-20. “Our 33 high frequency leading indicators reveal that acceleration rate, which was 65 per cent in Q1 of FY19, has declined sharply to 22 per cent in Q3 of FY20,” SBI said.

“We expect the gap between GVA (gross value added) and GDP to widen further in FY20 as the transfer of the government payments is witnessing a slowdown in Q4 of FY20.

“Interestingly, with the FY19 GDP growth being revised downwards steeply to 6.1 per cent in FY19, it indicates that the growth slowdown was much more significantly entrenched and had started from April 17 onwards/ FY18 after reaching a peak of 8.3 per cent in FY17 and only worsened in FY19 (post the IL&FS crisis), and in FY20 it has reached its nadir with growth projected at 5 per cent by CSO (with a downward bias),” it said.