Effects of COVID-19 on India’s Tourism Sector and Its Macroeconomy: A DSGE Analysis

Economic growth and the well-being of many emerging economies are closely tied to global exports. However, the emergence of COVID-19 brought about significant ramifications, primarily due to lockdown measures that exerted substantial stress on the tourism sector, a key driver of the Indian economy. Using a full-fledged dynamic stochastic general equilibrium (DSGE) framework that incorporates all the key sectors, we analyse the impacts of COVID-19 on the Indian tourism sector. Findings reveal subdued exports, national income, imports and investments, while transfer payments, government bond issuance and consumption exhibited increasing trends. All in all, results hailing from our model are congruous with the economic dynamics which prevailed in India. Policy-wise, there is a need to diversify the exporting arm of the Indian economy to bolster its resilience against any similar future shock. In order to reduce the Indian economy’s susceptibility to future crises like COVID-19, the suggestion from this study for policymakers is to strengthen sectors of the economy not reliant on tourism. JEL Codes: E32, Z32, C63