Deluge caused by floods may cut Kerala's economy by 100 bps: Report

The deluge that has ravaged Kerala may cull the services and consumption-driven state's economy by 100 bps, with the biggest loss being seen in tourism and hospitality, labour and the Kochi industrial belt.

The worst floods in a century has killed over 230 people since August 8 and caused colossal loss of property, agriculture, and infrastructure, which the state has pegged at over Rs 210 billion.

According to a report by Care Ratings, the rain-battered state's GDP is expected to fall to 6.5-7 per cent from the budgeted 7.6 per cent this fiscal year.

Though industry contributes only 26 per cent of the state GDP, as 66 per cent come from services. Out of which, only tourism and hospitality contribute 40 per cent of the state's GDP.

 

Therefore, the massive damages in the Ernakulam/Kochi region, which is the highest industrial and tourism contributor to state GDP, could see only a gradual recovery only next fiscal.

The damages to roads, where in over 10,000 km of district, state and national highways have been washed away, will be high as Rs 120 billion, while the figure for airports is nearly Rs 400 million, the report said.

It can be noted that the state's busiest and biggest airport in Kochi has been shut from August 16 and will now be opened only on August 29.

The next big shock is the plantation sector and tourism, which contribute the most to its economy. The rubber sector is staring at an estimated loss of Rs 4.2 billion, while the hit to the tea industry is pegged at Rs 350-400 million, according to the report.

With the state scheduled to celebrate its national festival of Onam this Saturday, the cancellation of all official celebration by the government will impact the consumer goods industry greatly.

Since Onam accounts for almost 60 per cent of total sales in the state, the floods can lead to a Rs 10 billion drop in total spending on consumer durables, the report said.

Another area on which the deluge will have an debilitating impact is employment.

Care Ratings estimates that employment of nearly 4.13 million individuals in the worst hit districts of Idukki, Ernakulam, Kollam, Kottayam, and Pathanamthitta has been affected and the wage loss is estimated at around Rs 40 billion for August alone (based on the average wage rate of Rs 400 per day for Kerala as per the data from the annual report for 2017-18 of the Union ministry of labour).

According to the report, the state will have to borrow heavily from the market as Central aid has only been a paltry Rs 6 billion, against an immediate demand for Rs 25 billion by the state, and the total loss is estimated at over Rs 210 billion.

With tens of thousands of homes damaged fully or partially, the average rebuilding cost will Rs 50,000-Rs 1,00,000 per unit, which will have to be financed by banks, which may lead to a high double digit credit growth, which the agency pegs at 17 per cent or more.

The revenue deficit will widen further against the budget estimate of Rs 128.6 billion and the fiscal deficit too would increase from the budget estimate of 3.1 per cent of state GDP, the report warned.

"The state debt too is likely to surge and may have to resort to increased market borrowings from the budget estimate of Rs 1.6 trillion. Every Rs 10 billion spent over and beyond the budgeted amount as flood relief will widen the revenue deficit by 0.12 per cent of gross state domestic product," said the report.

On the estimated cost of relief operations, it said sustaining the over one million people in relief camps on a consistent basis will involve a minimum Rs 100 million a day or Rs 3 billion a month. This would have to be financed from either relief grants from the Centre or contributions by others.