As
the global pandemic due to the COVID 19 inflicts enormous costs on countries of
the world, efforts are being made to compute the loss to the economy so as to
devise countervailing measures to mitigate the ill effects. Kapur and
Subramanian[iii]
(K&S henceforth), estimated that a two month lockdown would imply that about
a month’s GDP would be lost due to the lockdown and that government
expenditures to the extent of 5% of GDP would be required to make good this
loss. CRISIL has estimated that India’s real GDP growth rate will collapse to
1.8%, which is quite similar to the forecasts of the IMF. ICRA expects the 2020-21Q1
GDP to fall by as much as 15% or more. While estimates are available for India
as a whole, computations at the level of the states has been missing. This note
makes an attempt to estimate the losses for Maharashtra.
We
take the K&S approach as a starting point but add substantial detail to our
computations. Specifically, where we differ from K&S is in the careful
identification of sectors of the economy, which were exempt and not exempt
during various phases of the lockdown. This allows us to take a more granular
look at the losses as compared to the rather broad brush assumptions of
K&S. Our computation is based on the Gross State Value Added (GSVA) which
we employed to separate out the exempt and non-exempt activities. Once we had
an estimate of the total contribution of exempted activities, we estimated the
losses associated with activities that could not function (i.e. the non-exempt
activities). It may be mentioned that we carried out these computation
separately for the three phases of the lockdown.
Table
1 below provides a list of activities that were fully exempt and partially
exempt during the various phases of the lockdown.
Table 1: Broad
Categories of Fully Exempt and Partially Exempt Activities
While
computing the GVSA of the fully exempt activities is straight forward, doing so
for the partially exempt activities required some assumptions. We turn to these
assumptions now:
(i) Manufacturing: As stated in Table 1, manufacturing related
to food processing, medical instruments, and pharmaceuticals were exempt. The Annual
Survey of Industries (ASI) data for 2017-18 was used to assess the share of
such industries and it was observed that 42% of GSVA was attributable to these industries.
The list of 3-digit industries in ASI which we considered as exempt included
among others: (i) support activities to
agriculture and post-harvest crop activities; processing and preserving of
meat, fish, fruit etc.; manufacture of vegetable and animal oils and fats, dairy
products, starches, animal feeds, etc.; manufacture of textiles, refined
petroleum products, basic chemicals, fertilizers, pharmaceuticals, medical and
dental instruments; waste collection; waste treatment and disposal.
(ii) Hotel
and Restaurants: We have seen that motels and Hotels which accommodated
tourists who were stranded were exempt. Tourism is estimated to constitute 9.4%
of GDP and, hence, this proportion of Hotels and Restaurants were seen to be
exempt.
(iii)
Public Administration: Police and Public Works together were found to
constitute 72.6% of the budget of Home Department and General Admin Dept. This
proportion of GSVA of Public Admin was considered as exempt.
Based
on the above details, we obtained the aggregate amount of GSVA for ‘’fully
exempted activities’’ and also GSVA of ‘’partially exempted activities’’. Aggregating these gave us the GSVA associated
with the ‘’totally exempted’’ industries. We estimated this separately for Lockdown 1,
Lockdown 2 and Lockdown 3. Using the proportions of exempt and non-exempt
activities in the GVSA, we computed the losses as a percentage of GSDP. Table 2
gives these details.
Table 2: GSDP Losses during Various Phases of Lockdown
Having
obtained the share of Non-exempt activities, the next step was to obtain the
resources required, for which three scenarios were considered. This would be a sum of two components: (a)
share of the resources lost which could be compensated by way of support (we
experimented with 25%, 33% and 50% levels of support) and (b) an additional
0.5% of GSDP which the state would need to spend on Public Health on account of
the crisis situation. K&S had
assumed 2% of GDP being spent on Health. However, given that Maharashtra has
been spending 0.5% of GSDP on Public Health and there are capacity constraints,
we have been conservative and assumed that the State spending on health would
be double the share of GSDP, hence we consider an additional 0.5% of GSDP when
computing the resource requirement. The three scenarios we considered are as
follows:
Scenario I: 25% of the losses of
household income would have to be made good and an additional expenditure of
0.5% of GSDP was to be incurred on Public Health. In this case Rs. 83,533.52 crore would be
required i.e. 2.9% of GSDP
Scenario II: 33% of the losses of household income would have to be
made good and an additional expenditure of 0.5% of GSDP was to be incurred on
Public Health. In this case Rs. 1,05,658.52 crore would be required i.e. 3.67% of GSDP
Scenario III: 50% of the losses of household income would have to be
made good and an additional expenditure of 0.5% of GSDP was to be incurred on
Public Health. In this case Rs. 1,52,674.13 crore would be required i.e. 5.3% of GSDP
Some
of the options available to the State to make good the losses and raise
resources are:
1. The Central government has permitted States to increase their borrowings up to 3.5% of GSDP without
conditions and up to 5% with conditions. This will allow Maharashtra to borrow
additional amounts, of course, bearing in mind the fact that future interest
payments will rise and constrain future fiscal space. However, funds available through deficits are difficult to
predict since revenue collections from taxes is likely to be adversely affected,
which by itself will raise deficits.
2. Maharashtra's share in the State Disaster Response Fund will offer
some resources.
3. Maharashtra can expect to get additional
funding from the increased allocation of
Rs. 40,000 crore to MGNREGA announced by the Central government. Earlier
the allocation was Rs. 61,000 crores.
4. Outlays
on newly initiated capital projects,
as announced in Maharashtra’s budget for 2020-21, can be postponed. For example, some of the new
projects like the Konkan Marine Highway and the new metro line for
Pune-Pimpri-Chinchwad could be shelved for the moment and resources re-directed
to meet the crisis.
******
[i]
Mala Lalvani, Professor, Mumbai School of Economics and Public Policy,
University of Mumbai mala.lalvani@gmail.com
[ii]
Ajit Karnik, Professor, Middlesex University, Dubai ajit.karnik@gmail.com
