‘Economy to see output loss of $190 bn’

FDI by firms moving from China to India will help offset damage: Kotak’s Shah

May 09, 2020 10:31 pm | Updated 11:03 pm IST

Nilesh Shah

Nilesh Shah

The Indian economy is likely to suffer an output loss of about $190 billion due to the 47-day nationwide lockdown imposed amid the COVID-19 outbreak, according to Nilesh Shah, MD, Kotak Mahindra Asset Management Company. He added that this would be in addition to the substantial cost of restarting the economy.

Speaking at a webinar hosted by industry body Assocham, Mr. Shah added that there were only three ways in which this cost can be covered — foreign direct investment, fiscal stimulus and monetary stimulus. “Our GDP is about $3 trillion; if we remain shut for a month with 100% drop in activity, output loss could be $250 billion. At 50% activity, output loss could be about $125 billion; we are likely to be shut for 47 days this year so output loss this year could be about $190 billion assuming that we will all open up on May 17,” Mr. Shah said.

He added that lower oil prices would benefit our economy by $40-45 billion this year. If we replace made-in-China goods with India-made products it can help save about $20 billion in the trade deficit.

“Effectively, we are looking at a net $130 billion output loss for 47 days of lockdown plus the massive cost of restarting the economy.”

According to Mr. Shah, India’s biggest opportunity lies in encashing goodwill and getting capital from foreign firms to boost domestic savings so that growth can be accelerated. “FPI in equity and debt and FDI by bringing companies from China to India will help us cover the losses and minimise the damage caused by the COVID-19 crisis. If the economy does well, eventually, markets will also start doing well,” he noted. On fiscal stimulus, he said many businesses needed support in the form of grant aid or subsidies, which is why fiscal stimulus is necessary.

On interest rates, he said, “Policy rates have been cut but it has not yet reflected in borrowers’ accounts. Fortunately, with RBI’s intervention, the 10-year yield is now below 6% and soon it should reflect in the borrowers’ accounts as well.”

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