Covid-19 impact: Economic growth may fall to 1.1% in FY21, says SBI report

Migrant workers take rest outside the closed shop during the nationwide lockdown imposed as a preventive measure against the coronavirus outbreak in Allahabad. Photo: PTI
India's GDP growth may slide to 1.1 per cent in the current financial year, on account of the impact of coronavirus outbreak on the economy, a research report by SBI said on Thursday.

The economic growth rate during 2019-20 is estimated to come down to 4.1 per cent from 5 per cent projected by several agencies before the outbreak of deadly virus, which affected more than 2 million people around the world and took lives of over 130,000 people.

According to the SBI Ecowrap report, the extension of the lockdown would result in economic loss of Rs 21.1 trillion or 6 per cent of the nominal Gross Value Added (GVA).

In order to check the spread of Covid-19, the government has decided to extend the lockdown to May 3, with some relaxations for specified sectors.

"With the lockdown now being extended till May 3 and simultaneously Government providing some relaxations from April 20, we estimate the overall loss for FY21 around Rs 12.1 trillion /6 per cent of nominal GVA taking the nominal GVA growth for entire year to be around 4.2 per cent.

"Nominal GDP for FY21 could be lower/closer to 4.2 per cent, as there is a strong possibility of subsidies outstripping tax collections. However, taking nominal GDP growth at 4.2 per cent, the real GDP growth for FY21 would be around 1.1 per cent," said the report.

The lockdown, the report said, will have a significant impact on several macroeconomic parameters.

Quoting PLFS survey 2017-18, the report said, there are 373 million workers engaged as self-employed, regular and casual workers, with share of self employed at 52 per cent, casual worker at 25 per cent and the rest engaged as regular wage earners and others.

"We estimate the income loss per day of these 37.3 crore workers due to lockdown is around Rs 10,000 crore, which translates into a loss of Rs 4.05 trillion  for the entire lockdown period. For causal labourers, this income loss it at least Rs 1 trillion . Thus any fiscal package should at least strive to more than make up for this Rs 4 trillion  income loss," it added.

Secondly, "as our GDP forecasts change, fiscal estimates will also change accordingly. Net Tax Revenue will have a shortfall of at least around Rs 4.12 trillion s, and Revenue shortfall for states will be Rs 1.32 trillion s. The revised fiscal deficit would be at 5.7 per cent of GDP and after taking into account only the current EBR the deficit rises to 6.6 per cent of GDP," it noted.

The fiscal deficit of the states is expected to rise to 3.5 per cent of GDP from the budgeted 2 per cent in FY21.

"We estimate that the EBR number will rise significantly as Government will try to mobilise resources more through unconventional means like COVID Bonds, monetisation of deficit and others," as per the report.

The consolidated fiscal deficit might rise to 10 per cent of GDP on an unchanged EBR, it said, adding a 4 per cent slippage in nominal GDP tantamount to Rs 8 trillion  of fiscal support.

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