India’s real GDP may decline by 10.9% in FY21: SBI economist

Mumbai: After a worse-than-expected 23.9 per cent decline in GDP in the June quarter, the top economist at State Bank of India expects a steeper decline in FY21 real GDP — again in the double digits.

Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India, now expects FY21 real GDP growth to decline by 10.9 per cent, compared to a previous estimate of 6.8 per cent.

“After a decline of 23.9 per cent real GDP growth in Q1, now the question arises on how much growth will decline in subsequent quarters. It is now clearly visible that Q2 decline will also be in double digits,” Ghosh said in a note on Tuesday.

“Our preliminary estimate indicates that all the four quarters of FY21 will exhibit negative real GDP growth and decline of full year growth will likely be in double digits (around 10.9 per cent),” he said.

Ghosh said the Q2 real GDP decline will be in the range of 12-15 per cent, for Q3 around 5-10 per cent, while Q4 may see a decline of 2-5 per cent. The momentum of economic pick-up has slowed down in Q2 FY21 and the bank’s Business Disruption Index is nearly at the same level as on August 24 as it was at the end of June, he added.

GDP growth in Asia’s third-largest economy plunged to 23.9 per cent in Q1 FY21 due to the nation-wide lockdown imposed on March 25 in the wake of Covid-19 pandemic, making it India’s worst growth performance since the country started reporting quarterly GDP data in 1996.

The SBI economist pointed out that of the GDP growth data of 60 countries that has been released so far, all economies barring China and Vietnam, exhibited decline in growth.

The average decline of 60 economies in April-June is 12.2 per cent as compared to 1.4 per cent decline in January-March.

The only saving grace in these times is the growth of 3.4 per cent in agriculture & allied activities, though the growth in nominal agri GDP was at 5.7 per cent, as against an average 13.5 per cent in previous two quarters as the government had imposed the least restrictions on this sector and rural hinterlands were not as impacted from the Covid-19 pandemic until June. But, Ghosh sees this reversing in Q2 with rural areas now in the grip of Covid-19.

However, a few positives had emerged amid all the gloom, pointed Ghosh.

He said that the RBI sector-wise credit-data for the month of July indicates that except industry, credit has increased in all other major sectors in July, and there has been a significant increase in credit to MSE, agri & allied and personal loans.

“It is heartening to see that the banking sector has largely been able to insulate itself from the disruption due to greater technology integration and quick role out of work from home measures and banking being an essential service,” said Ghosh.

Also, he drew attention to the new projects announcements that were seen in sectors such as roadways, basic chemicals, electricity, community services such as hospitals, water sewage pipelines in the June quarter.

He called for measures for revival of sectors that were hit hard by the pandemic and lockdown.

“We now believe sectors such as construction, trade and hotels, aviation need to be revived. Restoring transportation services and giving push to infrastructure by issuing special bonds to RBI like perpetual bonds must also be explored apart from supporting states through fiscal measures in their endeavor,” he said.

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