SBI's research wing, Ecowrap has revised India's GDP growth downward for the financial year 2020-21 to 8 per cent from 7 per cent projected earlier, saying that new curbs on the movement of people or restrictions on businesses are a risk to the nascent recovery. For FY22, the agency still expects real GDP growth to be around 11 per cent and nominal GDP at 15 per cent.
On India's Q3 GDP growth, the agency said that Asia's third-largest economy exited the recession and grew by 0.4 per cent in the December quarter of the current fiscal with the reopening of the economy. The GDP had contracted by a record 24.4 per cent in Q1 FY21 (April-June) and 7.3 per cent in Q2 (July-September).
The SBI report, however, expects GDP growth to decline in Q4 FY21 because of a statistical aberration with food subsidy clean up. Gross value added (GVA), the value of output less the value of intermediate consumption, has been pegged at 2.7 per cent for Q4 FY21. The agency said that it is a better estimate to gauge economic recovery in the current background when tax numbers are notoriously fickle.
"India is now one of the few major economies to post growth in the last quarter of calendar year 2020, with improvement in the economy's performance inversely tied to a drop in COVID-19 infections (even in most of the European economies the GDP contraction became more deep in Q4 2020 as compared to Q3 2020)," said the report by Ecowrap which is headed by SBI's group chief economic advisor Soumya Kanti Ghosh.
The report, however, raised concerns over the recent surge in COVID-19 cases, saying that the uptick in cases has raised the risk of a new round of localised lockdowns. "New curbs on movement of people or restrictions on businesses are a risk to the nascent recovery, given that gains in Q3 quarter probably came from the reopening of the economy," it said.
"For the full fiscal GDP growth is expected to decline by 8 per cent and GVA growth by 6.5 per cent. For FY22, we still expect that real GDP growth would be around 11 per cent and nominal GDP at 15 per cent. Normally the gap between annual GDP and GVA is less than 70 bps. For the first time in FY21 the gap is whopping 148 bps primarily due to huge decline in net indirect taxes in Q1 (in Q1 the gap was 200 bps). The nominal loss of Rs 13.2 lakh crore in H1 has turned into gain of Rs 2.7 lakh crore in Q3 and is expected to be around Rs 2.8 lakh crore in Q4. For the entire fiscal, the nominal loss would be around Rs 7.6 lakh crore, though we believe that FY21 loss would be still less than the NSO estimate," the report said.
Sector wise, agriculture and allied activities reported a growth of 3.9 per cent in Q3 FY21 as compared to 3.4 per cent growth in Q3 FY20. For FY21, agriculture is expected to increase by 3 per cent as against 4.3 per cent growth in FY20. The industry sector grew by 2.7 per cent in Q3 primarily due to 7.3 per cent growth in electricity, gas, water supply & other utility services and 6.2 per cent in construction. The mining and quarrying sector still remains in negative territory. For FY21, the industry sector is expected to contract by 8.2 per cent as against a 1.2 per cent decline in FY20.
"Electricity, gas, water supply & other utility services is the only sector except agriculture which is expected to grow in FY21," the SBI report said.
In Q3 FY21, the services GDP growth, although negative, has recovered significantly to -1 per cent, compared to a decline of -21.4 per cent in Q1 and -11.3 per cent in Q2, mainly due to rise in 'financial, real estate and professional services', with growth at 6.6 per cent. For FY21, services sector is expected to contract by 8.1 per cent as against 7.2 per cent growth in FY20.
As per the report, the GDP deflator growth for FY21 is estimated at 4.6 per cent, showing a 100 bps increase from FY20. However, going forward the real GDP growth is expected to turn positive and deflator is expected to come down again, it said. Overall, there is an upward push in manufacturing, construction and trade, hotels, transport, communication & services related to broadcasting deflator and these are the sectors that have shown the highest GVA decline, the SBI report said.
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