Visa ban could shave 50 bps from India growth: Citi

India’s move to restrict overseas travellers from entering the country is likely to weigh on economic growth and cause a loss of precious foreign exchange, Citigroup said in a report published this week.

Travel and tourism accounted for 9.2% of India’s gross domestic product in 2018 and provided for 8.1% of total employment, according to the World Travel and Tourism Council. Foreign tourist arrivals reached 10.9 million in January on a 12-month rolling basis; if non-resident Indians are included, the number could reach as much as 18 million, Citi said. “A 50% drop in overall travel and tourism activity for one quarter could shave close to 40-50 basis points from annual headline GDP growth,” though the timing of the outbreak means the blow might be spread over two fiscal years, analysts led by Citi’s chief India economist Samiran Chakraborty wrote.

India on Wednesday suspended most visas in a bid to halt the spread of coronavirus as the World Health Organization declared the outbreak a pandemic. Existing visas, with some exceptions, will be suspended until April 15, the government said.

The economy depends on domestic consumption but the travel and tourism industry has been growing of late, providing much needed foreign exchange. In March-April 2019, 1.7 million foreign tourists came to India and spent $4.8 billion, or 16% of 2019 foreign spending, Citi said.

Adjusting the numbers to account for non-resident Indians and presumed 10% natural growth, the “foreign exchange earning loss could be in excess of $8 billion if we consider the suspension of tourist activity to last for two months,” the report said.

March is the last of India’s peak tourist months, but the start of the season when many Indians travel abroad.

Assuming Indians do not travel abroad this March and April, Citi estimates the net foreign-exchange earning loss at $5 billion. That means the current-account deficit for the first quarter of the financial year running through March 2021 could be $2.5 billion higher than their $9 billion estimates.