SBI report on lockdown exit strategy estimates economic loss at ₹8-lakh crore

The strategy for ending the lockdown imposed to prevent the spread of Covid-19 infection should have two distinct demographic and economic components, and the lockdown has resulted in an output loss of over ₹8-lakh crore, said a research report by State Bank of India (SBI). The nationwide lockdown is in place till April 14, with a strong opinion in favour of extending it further.

On demographic strategy, the report called for classifying the population into four groups ― positive cases, hospitalised, immunity compromised, and healthy individuals. There should be a well-defined strategy for each group as there is no herd immunity in the population for Covid-19. However, for geographical areas that have been identified as hotspots/ quarantine/ containment zones, the above classifications need to be customised as required at the local level. As on date, the total number of districts in India is 720, of which 284 have been affected by Covid-19 (at least with one patient).

As part of the economic strategy, the report has listed various measures to restore demand. The first preference, it said, must be given to agriculture and procurement, as nearly half the population depends on it. Some relaxation in inland transport ― road transport and railways ― may be considered as the rural population needs it. Trading activity, namely retail trade, may be allowed for extended time as it supports over 25 crore households.

Hotel services, including home delivery, is a large employment generator. Social distancing has particularly impacted this sector. A limited duration of opening of these services for low-risk groups may be allowed. The report favoured limited construction activity in districts with no cases or limited cases.

The lockdown has put a break on almost 70 per cent of all economic activities. The report estimates the total output loss at ₹8.04-lakh crore, in which the highest loss is in the transport sector, followed by hotels, trade, education, petroleum and agriculture. These sectors have maximum forward and backward linkages. The loss in labour income is because of the unorganised and proprietary forms of business organisations and nature of self-employment in the Indian economy that accounts for around 30 per cent of gross domestic product (GDP).

The report said out of ₹1.75-lakh crore of the first stimulus (Pradhan Mantri Garib Kalyan Yojana), only ₹73,000 crore is new and the rest is from the current Budget. That is why, the government needs to announce a large fiscal package for affected industries and sectors which are at high and medium risk. Its calculation suggests that the credit-to-GDP ratio of these sectors is around 12 per cent.

“We believe that to enable these sectors to grow at the same pace as they would have grown in normal times, a fiscal package of at least ₹3.5-lakh crore is needed. Our estimates also suggest that given a labour and capital income loss of around ₹3.60-lakh crore, the minimum subsistence fiscal package must be scaled up by ₹3-lakh crore, over and above the incremental ₹73,000 crore that was unleashed in the first phase,” it said.

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