News Non-Life28 Aug 2018

India:Floods likely to wash 1 percentage point off Kerala's GDP growth rate

| 28 Aug 2018

The impact of the floods on the southern state of Kerala is quite sharp and the economic consequences significant with growth in the GSDP (gross state domestic product) likely to be cut by one percentage point, says Mumbai-based CARE Ratings in an analysis on the economic and industrial impact of the floods.

The GSDP growth is expected to fall to 6.5-7% in real terms. for the fiscal year to 31 March 2019. At current prices, GSDP had been slated to grow by 12.6%, or 7.6% in real terms (taking inflation to be 5%). This means that up to 1.1 percentage points would be shaved off the GSDP growth rate because of the floods that have ravaged Kerala since the beginning of August.

The plantation sector and tourist segment would be impacted the most in terms of contribution to the GSDP. Lower spending levels during the harvest festival of Onam, which took place on 15-27 August, will impact the consumer goods industry (including auto) and gold.

Bank non-performing assets will be pressured though the impact is difficult to conjecture at this time. The old private banks which have a strong presence would be the ones affected the most.

The rains and floods have led to widespread destruction of property and displacement, the extent of which is yet to be fully assessed. Infrastructure losses would be high for roads (INR100bn [$1.4bn]-120bn), airports (INR300m-400m) and housing.

Immediate impact on employment

The five worst-affected districts of the state’s 14 districts i.e. Idduki, Ernakulam, Kollam, Kottayam and Pathanamthitta have an estimated population of 11.09m which accounts for nearly 30% of the state’s total population. CARE estimates that the employment of nearly 4.13 million individuals of these districts have been affected on account of the deluge and the resultant disruptions.

Of the total working age population in the five districts, around 19% comprise agriculture workers and household industry workers account for only 2%. For the 4.13m affected working individuals in the five regions, it may be assumed that 20% are NRIs. Hence around 3.3m workers would have their employment in jeopardy.

CARE estimates a wage loss of around INR40bn for the month of August (based on the average wage rate of INR400 per day for Kerala as per the data from the annual report for 2017-18 of the Ministry of Labour).The wage loss is in addition to the property, vehicle and consumer durable losses would weigh on incomes and consumption of the population here.

Reconstruction

Following the temporary disruption in business and economic activity, the reconstruction and rehabilitation of the flood affected regions infrastructure and businesses would result in an increase in economic activity. The increased activity however is likely to be centred on rebuilding efforts and may not lead to an overall increase in economic activity given the huge loss to property and infrastructure, the reconstruction of which would be time consuming given the shortages of skilled manpower and financial resources in the state.

While some segments of the service sector are likely to be adversely affected in the coming quarters namely tourism and hospitality, the increase in demand for services ranging from construction, repair and maintenance services (electricians, plumbers, painters etc), healthcare, public administration and financial services needed for the reconstruction purposes would witness an increase.

Overall the service sector growth is unlikely to see a notable increase as the increase in reconstruction related services is unlikely to offset the losses witnessed in the tourism and hospitality segments (largest share in services GVA at over 40%).


 

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