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“Apart from a substantial cost of restarting, Indian economy will have to roughly cover $190 billion (bn) output loss caused because of 47 days’ lockdown imposed in wake of the COVID-19 pandemic, said Nilesh Shah, managing director, Kotak Mahindra Asset Management Co. Ltd. on Saturday in an ASSOCHAM webinar on ‘Covid-19: Impact & Opportunities in Indian Mutual Funds.”
“Sharing a rough calculation of about loss of GDP because of lockdown, Shah said, “Our GDP is about $3 trillion (tn), if we remain shut for a month with 100 per cent drop in activities output loss could be $250 bn. At 50 per cent activities output loss could be about $125 bn, we are likely to be shut for 47 days in this year so output loss this year could be about $190 bn assuming that we will all open up on 17th May.””
Shah who is also chairman of Association of Mutual Funds in India (AMFI) added that there is going to be massive cost of restarting the economy which will be over and above that bill. He said that lower oil prices at current level will benefit our economy by $40-45 bn this year. if we replace made in China goods with India made products it can help save about $20 bn from trade deficit. “So effectively we are looking at net $130 bn output loss for 47 days of lockdown plus massive cost of restarting the economy.”
“Shah further said that there are only three ways of covering up this cost – foreign direct investment (FDI), fiscal stimulus and monetary stimulus. He added that this is one of the most challenging period, we are going through unprecedented crisis, while there are some benefits of lower oil prices and lower trade deficit, our biggest opportunity lies in encashing our goodwill and getting capital from foreign companies to boost our 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 corona virus crisis. If economy does well, eventually markets will also start doing well.”
“On the fiscal stimulus side, he said that there is a need to balance between speed and accuracy. “There are many businesses which will require support in form of grant aid or subsidies, which is why the fiscal stimulus is necessary.””
“On the monetary stimulus side, he said that the Reserve Bank of India (RBI) has taken lot of steps, they have cut rates, improved liquidity but they now need to ensure that the liquidity moves from banks to borrowers. “Policy rates have been cut on repo and reverse repo side but it has not yet reflected in borrowers’ accounts. Fortunately, with RBI’s intervention 10-year yield has now crossed below six per cent and soon it should start reflecting into borrowers’ accounts as well.””
““But the real game changer is FDI because today companies would like to move away from China for diversifying supply-chain and political reasons,” he said adding that there is a severe competition from countries like Vietnam, Korea, Thailand and Bangladesh as everyone is competing against them, but India is the only country which can give access to 1.36 billion strong consumer market plus we have goodwill of exporting medicines when the world was in crisis.”
“Sharing his views, ASSOCHAM’s secretary general, Deepak Sood said, “In today’s volatile market environment, mutual funds are looked upon as a transparent and low cost investment vehicle, which attracts a fair share of investor attention promoting the growth of the industry.””
