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Covid-19: Fiscal, monetary steps required to support economy

Both fiscal as well as monetary boosters are needed to help the economy from the twin troubles of output gaps and price spikes due to the coronavirus pandemic which is yet to make a solid medical impact on the country, say economists at SBI Research. The report also call upon the Reserve Bank to consider a degree of prudential forbearance in the most affected sector of hotel, aviation, transport, metal, auto components and textiles to help them tide over the crisis.

As of today, three people have lost their lives in the country while over 125 are infected. But the increasing lockdowns across the nation have already left the travel, tourism and hotels industry in the limbo which can only aggravate as more cities join the lockdowns and social distancing measures come into force. On the demand side, an inoperability analysis of transport, tourism and hotels show significant impact on demand and hence output. "On an aggregate basis, we estimate that the impact of a 5 per cent inoperability shock could be 90 bps on GDP from these three segments along with storage and communication segment, and the same can spread over FY20 and FY21, with a larger impact in FY21," SBI Research said in a report on Tuesday.

In 2018, the country received 10.6 million foreign tourists, up 5.2 per cent over 2107 and netted USD 28.6 billion in foreign exchange earnings from tourism which was up 4.7 percent in dollar terms. The proposed one-month travel ban will have severe impact on foreign tourist and earnings. Based on above numbers, we can estimate that the country will lose around 2-3 million tourists in 2020 that will lead to loss of USD 5-7 billion foreign exchange earnings. We also believe that domestic train and air traffic will also get hit from this."

Source: https://www.business-standard.com/article/pti-stories/covid-19-fiscal-monetary-steps-required-to-support-economy-120031700909_1.html