Industry

COVID-19 will impact GDP growth by 90 bps: SBI report

A mall in Coimbatore wears a deserted look on Monday, March 16, 2020.

A mall in Coimbatore wears a deserted look on Monday, March 16, 2020.   | Photo Credit: M. PERIASAMY

A blend of monetary and fiscal policy could be the best option

The spread of COVID-19, the deadly pandemic, which has impacted several sectors especially transport, tourism and hotel industries, could impact the economic growth of the country by 90 basis points, a report by State Bank of India said.

“On the demand side, inoperability analysis for three sectors, namely transport, tourism and hotels, shows significant impact on demand and hence output. On an aggregate basis, we estimate that the impact of a 5% inoperability shock could be 90 basis points on GDP from trade, hotel and transport, storage and communication segments, that could be spread over FY20 and FY21, with a larger impact in FY21,” the report authored by Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI, said. The report noted that while India had till date responded quite well to the COVID-19 crisis, the financial markets had been significantly impacted.

Since China is an important source of critical inputs for many sectors, the supply shock can lead to to higher price of inputs, which, in turn, could affect the price of all the commodities up the supply chain, it said.

The report also pointed out that a simultaneous demand and supply shock to the economy will also have implications for the banking sector. The demand side shock is expected to lead to an output loss of 1.2% in banking and insurance combined.

“We believe that in the current COVID-19 outbreak, a combination of monetary and fiscal policy could be the best option,” it said.

The report proposed additional revenue due to increase in excise duty on petrol and diesel, which is in the range of ₹35,000 crore to ₹40,000 crore, could be spent on providing relief to people of the lower strata, who will lose income because of shutdown of commercial activity in the States.

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Printable version | Mar 30, 2020 1:05:06 PM | https://www.thehindu.com/business/Industry/covid-19-will-impact-gdp-growth-by-90-bps-sbi-report/article31092975.ece

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