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Deluge May Cull Kerala Economy by 100 BPS: Report

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.


Updated:August 22, 2018, 9:08 PM IST
Deluge May Cull Kerala Economy by 100 BPS: Report
File photo: A house is partially submerged in flood waters in Chengannur in the southern state of Kerala. (Image: AP)
Mumbai: 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 21,000 crore.

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 12,000 crore, while the figure for airports is nearly Rs 40 crore, 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 420 crore, while the hit to the tea industry is pegged at Rs 35-40 crore, 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 1,000 crore 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 41.3 lakh individuals in worst hit districts of Idukki, Ernakulam, Kollam, Kottayam, and Pathanamthitta has been affected and the
wage loss is estimated at around Rs 4,000 crore 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 600 crore, against an immediate demand for Rs 2,500 crore by the state, and the total loss is estimated at over Rs 21,000 crore.

With tens of thousands of homes damaged fully or partially, the average rebuilding cost will Rs 50,000-Rs 1 lakh 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 12,860 crore 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 1,000 crore 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 10 crore a day or Rs 300 crore a month. This would have to be financed from either relief grants from the Centre or contributions by others.

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