COVID-19 lockdown to cost India Rs 12.1 lakh crores: SBI Research
HYDERABAD: India’s economic loss due to the ongoing COVID-19 lockdown is estimated at Rs 12.1 lakh crore, according to SBI Research.
It translates to 6 per cent of nominal Gross Value Added (GVA), taking the nominal GVA growth for the entire year to be 4.2 per cent.
Real and nominal Gross Domestic Products (GDP) for FY21 are projected at 1.1 and 4.2 per cent respectively due to the strong possibility of subsidies outstripping tax collections.
“A 4 per cent slippage in nominal GDP that we are factoring in is tantamount to Rs 8 lakh crore of fiscal support (Rs 2 lakh crore = 1 per cent of GDP) and this should be the recommended benchmark,” said Dr Soumya Kanti Ghosh, group chief economic adviser, SBI.
“Interestingly, we are building in a downward revision in FY20 GDP growth from 5 per cent to 4.1 per cent that results in the gain of 1.1 per cent for FY21, which is exactly our estimate for FY21. Thus, if FY20 GDP is not revised down to 4.1 per cent, then growth for FY21 can be even lower than 1.1 per cent,” he added.
According to Ghosh’s calculations, Q4FY20 GDP could now be at 1.1 per cent, but that’s not the bad news. He expects the GDP in the first quarter of FY21 to contract to 6 per cent or even higher followed by no growth in the second quarter.
The SBI Research report estimated the income loss due to the lockdown for 37.3 crore workers at Rs 4.05 lakh crore, or about Rs 10,000 crore per day.
Of this, causal labourers’ income loss comprises at least Rs 1 lakh crore and hence any fiscal package should at least strive to more than makeup for the Rs 4 lakh crore income loss, Ghosh argued.
Meanwhile, a shortfall in net tax revenue is estimated to be at least Rs 4.12 lakh crore with revenue shortfall for states pegged at Rs 1.32 lakh crore. Subsequently, the revised fiscal deficit will be at 5.7 per cent of GDP.
If you include Extra-Budgetary Resources (EBR), it rises to 6.6 per cent.
Similarly, the fiscal deficit of states will rise to 3.5 per cent of GDP from the budgeted 2 per cent in FY21. Together, the combined fiscal deficit may rise to 10 per cent of GDP on an unchanged EBR.
“We estimate that the EBR number will rise significantly as the government will try to mobilise resources more through unconventional means like COVID bonds, monetisation of deficit and others,” Ghosh added.