The Government should announce a large fiscal package of at least Rs 3.50 lakh crore for the affected industries and sectors impacted by the COVID-19 pandemic to enable them to grow at the same pace as they would have grown in normal times, according to State Bank of India’s research report Ecowrap.

The aforementioned package should be over and above the Rs 1.75 lakh crore package announced by the Finance Minister last month,of which Rs 73,000 crores is only new and rest is from current budget.

Overall sectoral risk based on key parameters such as credit ratio, leverage, stress and COVID-19 impact depict sectors such as Automobiles, Hotel, Aviation, Gems & Jewellery, NBFC (non-banking finance companies), Power, Real Estate and Construction and Engineering could be affected severely with combined impact, the report said.

Ecowrap emphasised that it is imperative for the government to unveil a comprehensive set of packages for all such sectors, including GST (goods and service tax) rate rationalization, tax moratorium, payroll support among others. This apart, the states have to be hand-held in these times of crisis with a potential shortfall in GST revenue looming large.

Subsistence fiscal package

The estimates of SBI’s economic research department (ERD) also suggest that given labour and capital income loss of around Rs 3.60 lakh crore, the minimum subsistence fiscal package must be scaled up by Rs 3 lakh crore, over and above the incremental Rs 73,000 crore that was unleashed in the first phase. Such package also should include payroll support for impacted industries and budgetary support for states.

Output loss at Rs 8 lakh crore

The ERD has estimated the total output loss due to the impact of COVID-19 pandemic at Rs 8.04 lakh crore, in which highest loss is in transport sector followed by hotels, trade, education, petroleum and agriculture. These sectors are sectors with maximum forward and backward linkages. ¨

“The income loss, both labour and capital is maximum in hotels, trade, education, petroleum and agriculture. The loss in labour income is because of the unorganized and proprietary form of business organization and nature of self employment in the economy that accounts for around 30 per cent of GDP. Thus a fiscal package is imperative now,” the report said.

“Interestingly, mapping the COVID-19 affected districts with credit outstanding reveals that 284 districts (40 per cent of 736 districts) amounted for almost 98 per cent of outstanding bank credit.

“Thus it is imperative to give a push to the banking system post COVID-19 for effectively leveraging and playing the role of financial intermediation,” said Saumya Kanti Ghosh, Group Chief Economic Adviser, SBI

Staggered exit from lockdown

The SBI report said a staggered exit, encompassing Demographic and Economic Strategy, could be the best option from the lockdown that ends on 14 April.

When it comes to Demographic Strategy, the report said it may be advisable to divide the population into four groups like COVID positive cases, those hospitalized, immunity compromised, and healthy individuals and have well defined strategy for each group because 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 classification needs to be customised as required at the local level.

The economic exit strategy must account for how erosion in demand can be restored in quick time. The measures that may be implemented include: (i) first preference to be given to agriculture and procurement as 50 per cent of the population is dependent on agriculture and allied activity, (ii) some relaxation in inland transport – road transport, railways may be considered keeping in mind the dependency of rural population on the same.

The other parts of the economic exit strategy will include (iii) trading activity such as retail trade may be allowed for extended time as it is supports over 25 crore households, (iv) hotel services including home delivery as it is a large employment generator. Social distancing has particularly impacted this sector. A limited duration of opening of these services for low risk group as explained above may be allowed,

Additionally, limited construction activity in districts with no cases or limited cases could be allowed, and digital infrastructure push such as Aarogyasetu app may be promoted as preparation for possible second wave by mass communication and education.

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