Maintaining an emergency fund with at least 6 months of household expense is what most financial planners suggest.
Per Capita Income India: With the COVID-19 outbreak leading up to the lockdown across the countries, the economies of most nations are going to take a heavy toll on its finances. And, not just the country’s growth rate is going to be impacted, the individual income levels are also expected to take a hit. The Economic Research Department report from the State Bank of India has released a report authored by Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India stating that at all India level, the per capita income (PCI) will decline by 5.4% in FY21 to Rs 1.43 lakh. This decline in PCI is higher than the nominal GDP decline of 3.8%.
State-wise, the results are quite startling and interesting. The estimates suggest that rich states (states whose per capita income is greater than all India average) will be most affected in per capita income terms.
In Delhi (-15.4%) and Chandigarh (-13.9%), the decline in PCI is almost thrice than the decline at all India level (-5.4%).
States like Maharashtra, Gujarat, Telangana, and Tamil Nadu are expected to witness a decline of 10-12% in PCI in FY21! These states and UTs constitute as much as 47% of India’s GDP!
A total of 8 states and Union Territories are expected to witness a decline in PCI in double digits in FY21 and that is most alarming.
However, in the relatively less well off states like Madhya Pradesh, UP, Bihar, Odisha, etc. (where per capita income is below the national average) the decline in PCI is less than 8%.
Thus quite intriguingly, according to the report, it is expected that inequality gap in India will narrow down post-COVID pandemic as decline in income of rich states will be much greater than the decline in income of poor states.
Globally, almost all nations are expected to witness a contraction in the GDP growth rate at least for FY 2021.
For India, the report projects a GDP decline of 6.8% for FY21. As per the report, “We believe that India will clearly have a “statistical V-shaped recovery / Swoosh ” in FY22 primarily due to the favourable base effect. Beyond such base effect, it would, however, take at least till FY24, if India replicates the best case example in history, if not more before India gets back to pre-pandemic level growth rate! It will be an arduous journey, but we can change our destiny if we are clear in our mind of what we need to do! Historical experiences show that it takes on an average 4 years for a country to get back to pre-crisis growth rates, once it gets out of any crisis, and the best example in history is only around 2 years!”
What to do
With job-cuts and pay-cuts, managing finances will attain its importance in these times now. Maintaining an emergency fund with at least 6 months of household expense is what most financial planners suggest. It’s better to cut down on discretionary expenses and at the same time try to clear any kind of debt. Make sure, you don’t roll over credit card dues and avoid EMI moratorium scheme of RBI as far as possible. Also, make sure that your long term investments are on track and avoid dipping into existing investments unless hard-pressed for funds.