India’s GDP growth may slide to 1.1% in the current financial year, on account of the impact of coronavirus ( COVID-19 ) 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% from 5% projected by several agencies before the outbreak of deadly virus, which affected more than 20 lakh persons around the world and took lives of over 1.3 lakh people.
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.
According to the SBI Ecowrap report, the extension of the lockdown would result in economic loss of ₹21.1 lakh crore or 6% of the nominal Gross Value Added (GVA).
“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 ₹12.1 lakh crore/6% of nominal GVA taking the nominal GVA growth for entire year to be around 4.2%.
“ Nominal GDP for FY21 could be lower/closer to 4.2%, as there is a strong possibility of subsidies outstripping tax collections. However, taking nominal GDP growth at 4.2%, the real GDP growth for FY21 would be around 1.1%,” 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 37.3 crore workers engaged as self-employed, regular and casual workers, with share of self employed at 52%, casual worker at 25% 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 ₹10,000 crore, which translates into a loss of ₹4.05 lakh crore for the entire lockdown period. For causal labourers, this income loss it at least ₹1 lakh crore. Thus any fiscal package should at least strive to more than make up for this ₹4 lakh crore 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 ₹4.12 lakh crores, and Revenue shortfall for States will be ₹1.32 lakh crores. The revised fiscal deficit would be at 5.7% of GDP and after taking into account only the current EBR the deficit rises to 6.6% of GDP,” it noted.
The fiscal deficit of the States is expected to rise to 3.5% of GDP from the budgeted 2% 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% of GDP on an unchanged EBR, it said, adding a 4% slippage in nominal GDP tantamount to ₹8 lakh crore of fiscal support.
