SBI research unit puts loss of Rs 12.1 lakh crore due to COVID-19 lockdown



With the COVID-19 lockdown being extended till May 3 and simultaneously government providing some relaxations from April 20, a report by State Bank of India's economic research department on Thursday estimated the overall loss for FY21 at Rs 12.1 lakh crore or 6 percent of nominal gross value added (GVA), taking the nominal GVA growth for the entire year to be 4.2 percent.

Nominal gross domestic product (GDP) for current fiscal can be closer to 4.2 percent as there is a strong possibility of subsidies out-stripping tax collections. "However, taking nominal GDP growth at 4.2 percent, the real GDP growth for FY21 will be around 1.1 percent," said the report authored by Soumya Kanti Ghosh, Group Chief Economic Adviser at SBI.

"Interestingly, we are building in a downward revision in FY20 GDP growth from 5 percent to 4.1 percent that results in a gain of 1.1 percent for FY21 which is exactly our estimate for FY21. Thus, if FY20 GDP is not revised down to 4.1 percent, then growth for FY21 can be even lower than 1.1 percent."

The report said Q4 FY20 GDP could now be at 1.1 percent and Q1 FY21 GDP can witness a contraction of 6 percent or even higher and Q2 FY20 could witness no growth. "The lockdown is going to have a significant impact on our macro-parameters."

As per the Periodic Labour Force Survey (PLFS) report 2017-18, there are 37.3 crore workers engaged as self-employed, regular and casual workers with a share of self-employed at 52 percent, casual worker at 25 percent and the rest engaged as regular wage earners and others.

The report estimated the income loss per day of these 37.3 crore workers due to lockdown is about Rs 10,000 crore, which translates into a loss of Rs. 4.05 lakh crore for the entire lockdown period.
For causal laborers, this income loss at least Rs 1 lakh crore. Thus any fiscal package should at least strive to more than makeup for this Rs 4 lakh crore income loss.

As the GDP forecasts change, fiscal estimates will also change accordingly. Net tax revenue will have a shortfall of at least around Rs 4.12 lakh crore and revenue shortfall for states will be Rs 1.32 lakh crore, said the report.

The revised fiscal deficit will be at 5.7 percent of GDP and after taking into account only the current extra-budgetary resources (EBR), the deficit rises to 6.6 percent of GDP.
The fiscal deficit of states will rise to 3.5 percent of GDP from the budgeted 2 percent in FY21. "We estimate that the EBR number will rise significantly as the government will try to mobilize resources more through unconventional means like COVID bonds, monetization of deficit and others."

The report said consolidated fiscal deficit might rise to 10 percent of GDP on an unchanged EBR. "A 4 percent slippage in nominal GDP that we are factoring in is tantamount to Rs 8 lakh crore of fiscal support (Rs 2 lakh crore = 1 percent of GDP) and this should be recommended benchmark."

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