With India set to extend the lockdown that was due to end next week in an effort to prevent the further spread of Covid-19, global consulting firm McKinsey & Co has warned that the measures could come at a great cost.
In its recent report, the consultancy considered three possible scenarios for the country’s economy, depending on how long the restrictions stay in place. The decision to prolong the lockdown, announced on Saturday, renders the prediction with the mildest impact (10 percent contraction in the first quarter) impossible, as it was predicated on the measures being lifted on Tuesday.
While it is not yet clear how much longer Indians will have to stay home, if the lockdown continues for an additional month, it could put 32 million livelihoods at risk and the country’s economy could contract by around 20 percent in the first quarter, McKinsey’s analysts warn.
However, annual results in this case would not be too devastating, with growth falling between two and three percent in the fiscal year 2021.
The worst-case scenario envisaged by the report said there could be an even deeper annual economic contraction of around eight to 10 percent. This might happen if the epidemic continues to ravage the country and the authorities have to impose additional restrictions that spill into the second quarter and beyond. This scenario would result in an “even greater reluctance among migrants to resume work, and [ensure] a much slower rate of recovery.”
To evaluate those risks, the consulting firm spoke with more than 600 economists, financial market experts and policy makers, in 100 companies across multiple sectors.
The potential economic fallout of the coronavirus would vary by sector, with aviation, the auto industry, construction and real estate taking the biggest hits. The demand in key categories would also drop sharply.
“Current-quarter consumption could drop by more than 30 percent in discretionary categories, such as clothing and furnishings, and by up to 10 percent in areas such as food and utilities,” the analysis said.
As of Saturday, the coronavirus has infected more than 7,500 people in India and left nearly 250 dead, according to the Johns Hopkins data.
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