Mumbai, March 26 (IANS) India's GDP growth rate for the financial year 2020-21 is likely to fall to 2.6 per cent due to the ongoing 21-day lockdown, according to a report by the State Bank of India (SBI).
As per the the SBI Ecowrap released on Thursday, the GDP growth estimate for the current fiscal (2019-20) is seen declining to 4.5 per cent.
It noted that over a 60-year period, global GDP declined only once annually in 2009 by 1.7 per cent. Even if it is assumed on a most conservative basis that global GDP declines at nearly similar rate in 2020, and given India's share in global GDP currently at 3.5 per cent, it implies a contraction of 2 per cent of real GDP in FY21 purely because of India's integration with global economy through trade channel and social consumption channel.
"We estimate another 1.7 per cent impact on real GDP because of 21 day lockdown in Y21 resulting in at least 70 per cent of economy at astandstill. We thus peg our FY21 GDP estimate at 2.6 per cent, with a clear downward bias, with Q1FY21 GDP numbers witnessing a contraction," the report said.
"FY20 GDP estimates could also see a downward revision from 5 per cent to 4.5 per cent with Q4GDP growth at 2.5 per cent. The total cost of the lockdown is at least Rs 8.03 lakh crore in nominal terms/output loss of at least 4 per ent, an income loss of Rs 1.77 lakh crores."
It noted that the income loss would be highest in agriculture, transport, hotels, trade and education and these sectors will have job losses. However, the economy could recover potentially faster if A stimulus programme is in place early.
The output loss needs to be matched with equivalent resource mobilisation plans, noting the government has already come up with a package for the relief of the poor and deprived, the total cost of which is pegged at Rs 1.7 lakh crore.
"However, we expect immediate monetary and more fiscal packages for the economy, as this first package is only for providing food security and financial security to poor households and this entire expenditure is not additional outlay. We believe reliance on increased excise collections will be grossly inadequate and could be maximum 0.5 per cent of GDP given the significantly weak demand," it said.
It observed that the Reserve Bank of India (RBI) should aggressively monetise the deficit and this could be another 2 per cent of GDP and the rest 1.5 per cent could be funded from small savings collections and specially floated bonds, fight this pandemic, that could be outside fiscal deficit andshown separately in budget.
The government should incentiviSe these bonds for better market response, it said. The fiscal deficit can expand by 1.5 per cent of GDP.
Besides the already announced package announced on Thursday, the total economic package should include, at least Rs 75,000 crore GST shortfall in FY21 that could be compensated by Centre, postponement of taxes and bailout for specific sectors that could be another Rs 1 lakh crore, Rs 75,000 crore capital requirement freed up supporting Rs 10 lakh crore additional lending and Rs 50,000 crore forbearance package for the stressed sectors.
"Thus the total cost to the government could be around Rs 3.55 lakh crore, while the RBI could provide a relief of Rs 1.35 lakh crore to banks that could potentially be a game changer," said the report.
Finance Minister Nirmala Sitharaman on Thursday announced the first installment of a fiscal relief package, worth Rs 170,000 crore, toprotect the weaker sections of the society from the economic fallout of Covid-19.