Tourism, hospitality and aviation are among the worst affected sectors due to the Covid-19 pandemic, the latest survey by the Reserve Bank of India (RBI) has said.
About 90% of the respondents said that recovery within the tourism sector appears bleak in the next six months. The aviation sector came a close second, with about 85% categorising the future prospects as extremely bleak. Bankers said aviation is most likely to require support as the sector is highly leveraged, with high fixed costs.
The survey findings suggest that the ill-effects of COVID may remain for next 3-5 years and may impact the quality of credit in the banks’ books, the general risk-taking ability of entrepreneurs, investments in capital markets and real estate, and the saving pattern of households.
This is the first time that the survey has thrown up so many ‘very high-risk’ categories, which is an indicator of the state of the economy. In the previous survey, no item was classified under this category. The number of ‘high risk’ items have doubled to 16, the report pointed.
The new high-risk items include contagion risk following any other sovereign defaulting, the inability of corporations to raise foreign borrowings, risk that foreign portfolio investment and foreign direct investment may flatten. The domestic risks that are categorized as very high include slowing down of infrastructure spending, real estate price crash, rupee volatility, stock market volatility, liquidity risk and social unrest arising out of increasing inequality.
“We are in the midst of an unprecedented situation brought on by the COVID-19 pandemic, which has extracted unconscionable human and economic casualties. Its spread, intensity and duration has imparted extreme uncertainty not experienced in our lifetime. The loss of livelihood has been particularly severe on the vulnerable and disadvantaged,” RBI Governor Shaktikanta Das said in his ‘foreword’ to the report.
The report, says Das, coincides with a growing disconnect between the movements in certain segments of financial markets and real sector activity. “The pandemic hit India in a period of growth moderation. The ensuing disruptions in demand conditions and supply chains have been aggravated by global spill-overs. Of late, signs of a gradual recovery from the nationwide lockdown are becoming visible,” he said.
“The financial system in India remains sound; nonetheless, in the current environment, the need for financial intermediaries to proactively augment capital and improve their resilience has acquired top priority,” Das added.
