COVID-19: Economy to take nearly 1% hit over travel ban

Economy to take nearly 1% hit due to travel ban amidst COVID-19 outbreak: SBI

Representative image. (AFP Photo)

The COVID-19 outbreak could impact India’s overall economy up to 90 basis points or 0.9% (close to 1%) through trade, hotels and transport channels in between 2019-20 and 2020-21, a State Bank of India research has cautioned.

India could lose an estimated three million tourist footfalls in the calendar year 2020 and foreign exchange of about $7 billion in related revenues due to travel ban across the countries.

In 2018, India received 10.6 million foreign tourists with an annual growth of 5.2%. The country garnered $28.6 billion (Rs 1.94 lakh crore) in foreign exchange earnings, with an annual growth of 4.7%.

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"Considering these numbers on an aggregate basis, the pandemic shock could have a 90 basis point impact on India’s GDP from trade, hotels and transport in between 2019-20 and 2020-21," the paper said, adding this, in turn, will impact other sectors.

Various estimates suggest China alone accounts for India’s 3% of all Foreign Tourist Arrivals (FTAs). India receives an estimated earnings of $ 2,800 per Chinese tourist. The tourism industry would have a foregone revenue of $ 550 mn in the near future due to the pandemic.

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It said the inoperability analysis of three sectors – transport, tourism and hotels – show a significant impact on demand and hence output.

As the number of corona cases rise, the economic impact is expected to accrue from supply-chain risk which may link up with exports in pharmaceutical sectors.

With imports standing at 68%, China is a dominant supplier of bulk drugs and drug intermediates to India. The outbreak will force manufacturers to look for alternate suppliers and lead to an increase in domestic prices

On the direct export side, a set of commodities may see some disruption where China is an important export destination.

Impact of COVID-19 in India's economy:

* At least 220 Indian companies have legal linkages with around 350 companies in China. Of these, 58% are in the manufacturing sector, 40% are in the services sector and the remaining 2% are in the construction sector.

* Companies in sectors, such as retail trade, wholesale trade and transportation are expected to have foregone revenues; companies in sectors, such as construction and certain manufacturing segments will have a deferred growth.

* China and Hong Kong together constitute 9% of India’s export basket and over 17% to India’s import basket.

* Some exporters may need to diversify into other markets, while others may be able to increase their supply to China.

Sector-wise impact

Automotive: China is the fourth biggest market for Indian imports and the supply gap created can be met from alternate suppliers such as the USA, France and Germany.

Electronics: India’s consumer electronics imports from China stood at 43.2%, making it the biggest market for Indian imports.

Fertilizers: China commands one-third supply of manufactured fertilisers to India.

Gems & Jewellery: Hong Kong is India’s biggest export market with a share of 38% and China Mainland accounts for another 1%.

Logistics: Negative impact on flight operators owing to the temporary suspension of flights to China and Hong Kong. Limited impact on the shipping industry as India’s exposure to Chinese vessels docking at India ports is minimal.

Media & Entertainment: Overall limited impact as growth of Indian movies in China is high, but the penetration level of Indian movies is low.

Metals: Subdued impact on the domestic industry from a supply perspective as India has little reliance on China for imports.

Drugs & Pharmaceuticals: With imports standing at 68%, China is a dominant supplier of bulk drugs & drug intermediates to India. The outbreak will force manufacturers to look for alternate suppliers and lead to an increase in domestic prices.

Textile & Garments: China was India’s 2nd largest supplier with readymade garments imports standing at 27% in FY19. This will be positive for domestic players. Vietnam, Cambodia and India can fill the gap created in global demand of readymade garments.

Tourism: China accounts for India’s 3% of all Foreign Tourist Arrivals (FTAs). Estimated earnings of $2,800 per Chinese tourist, the tourism industry would have a foregone revenue of US$ 550 mn in the near future.

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