India’s economy was hit by the coronavirus lockdown

India is one of the world’s worst hit countries in the coronavirus pandemic, with reported cases spiking in recent weeks as the country emerged from a strict nationwide lockdown.

Cumulatively, India has reported more than 400,000 cases of infections since January. Though, relative to its population size, the percentage of infected individuals is still low. India also says the number of people who have recovered is higher than those currently affected by the virus.

The country’s lockdown began in late March and was subsequently extended several times. Stringent restrictions halted most economic activities and caused millions of people, many of them daily wage earners, to lose their jobs and revenue streams.

Investment bank Goldman Sachs last month predicted a massive 45% economic decline in the three months between April to June. Ratings agency Moody’s slashed India’s credit ratings to the lowest investment grade level.

India’s recovery trajectory is going to be weak as the country is struggling to get past the peak of the pandemic, according to Priyanka Kishore, head of India and Southeast Asia economics at Oxford Economics. She also said India’s fiscal policy response has been “quite meagre” compared to the stringency of the lockdown.

To mitigate the economic fallout, Prime Minister Narendra Modi’s government had announced a $266 billion support package containing both fiscal and monetary measures, said to be worth around 10% of India’s GDP.

But economists have said the package will do little to stimulate growth, as it includes very little planned government spending and benefits of several measures are expected to only be seen in the medium term.

The services industry collapsed in April as most businesses were shut due to the lockdown. A private survey by IHS Markit showed “extreme decline” in activity. The services business activity index compiled by the firm came in at a shocking 5.4, far below an industry forecast of around 40. Readings above 50 indicate expansion while those below that level represent contraction.

Business activity in the services sector also fell drastically in May as the pandemic hindered operations, reduced footfall in shops and led to a decline in demand. The number last month was 12.6 and IHS Markit said in its report that survey data “still pointed to extreme month-to-month declines in output and new orders.” Domestic travel and tourism sectors also declined sharply, contributing to the fall in services business activity.

IHS Markit pointed to India’s auto sector in a separate note this month. Production was largely shut in April before lockdown conditions started to be gradually eased. Citing the Society of Indian Automobile Manufacturers, the note pointed out the daily turnover lost for the auto manufacturing sector for each day of closure was around $300 million per day.

India’s economy was hit by the coronavirus lockdown. These charts show how, CNBC, Jun 23