Rating agency report says Kerala’s tourism to get hurt badly

Thursday, August 23, 2018

Analysts at CARE Ratings said in a report, the devastation in Kerala would have sharp and significant economic consequences and adversely impact tourism, which was one of the state’s core industries.

 
The credit rating agency also said that Kerala’s finances could take a hit, with the state’s gross domestic product being affected by up to 1 per cent because of the natural calamity.
“Lower spending levels during the festival of Onam will impact the consumer goods industry (including auto) and gold. Growth in gross state domestic product (GSDP) can be affected by up to 1 percent,” they wrote.

 
Here are a few ways in which the floods will hit Kerala’s finances and economy in general.
The five worst-affected districts are Idduki, Ernakulam, Kollam, Kottayam and Pathanamthitta, and CARE estimated that employment of nearly 4.13 million individuals in these districts has been affected on account of the deluge and the resultant disruptions.

 
“For the 4.13 million affected working individuals in the five regions, it may be assumed that 20 percent are NRIs. Hence around 3.3 million workers would have their employment in jeopardy,” the brokerage said.

 
CARE estimated a wage loss of around Rs 4,000 crore for August (based on the average wage rate of Rs 400 per day for Kerala, according to data available in the 2017-18 annual report of the Ministry of Labour).

 
CARE also pointed out that Kerala sees a huge demand for MICE (meetings, incentives, conventions and exhibitions) activities during April-June and October-March for tourism and social activities. Onam falls in the September quarter, which leads to a high influx of tourists in the state.

 
As such, Kerala’s financial position has been strained over the years. The state has a high revenue deficit and has been unable to maintain its fiscal deficit within the target of 3 percent of GSDP.

 
It also carries a high debt burden with outstanding debt of Rs 2.1 lakh crore (2017-18) or 31 per cent of GSDP.

 
“The finances of the state are likely to be further pressured owing to the floods. While expenditure towards flood relief and reconstruction would increase, the government income could see some moderation. The revenue deficit would widen further (2018-19 budget has estimated it to be Rs 12,860 crore) and the fiscal deficit too would increase from the budget estimate of 3.1 percent of GSDP (for 2018-19),” CARE said.

 
CARE believes that reconstruction activity would entail higher borrowing by the households and businesses, resulting in an increase in bank credit offtake and growth in the region.

 
“Credit growth could grow by 17-21 per cent (year-on-year) in Kerala this year assuming all average rebuilding expenditure by households of the order of Rs 50,000-Rs 1 lakh per unit is financed by banks. It is, however, likely that a large part could be from NBFCs too,” the agency added.

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