SBI sees GDP growth contracting 16.5% in the first quarter of FY21

With the Covid pandemic now spreading at a much faster rate in India, post the opening up of the economy, State Bank of India’s Economic Research Department (ERD) has warned that the decline in full year real GDP growth is likely to be in double digits in FY21.

When India had first imposed lockdown, the ERD’s GDP estimate for FY21 was 2.6 per cent. Later it was reduced to a negative 6.8 per cent in FY21.

Now, the situation has changed drastically and India has climbed to third position in overall Covid-19 cases in the world with more than 26 lakh total cases (12 per cent of world total), ERD said in its report “Ecowrap”.

“The ugly part of Covid-19 on economic growth is that as per our estimates all the four quarters of FY21 will exhibit negative real GDP growth,” said Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI.

The ERD assessed that Q1FY21 GDP growth will be significantly better, with the de-growth estimated at around 16.5 per cent as against previous estimate of a sharp decline at least in excess of 30 per cent.

“Specifically, de-growth in Corporate Gross Value Added (better than expected results of some financial and non-financial companies) has been significantly better than revenue de-growth in Q1FY21 as far as the results of the listed companies are concerned. “In principle, revenue decline of listed companies has been far outstripped by cost rationalisation thereby not impacting margins,” Ghosh said.

Per capita loss

ERD’s State-wise analysis indicates that the top 10 States accounted for 73.8 per cent of total GSDP loss with Maharashtra contributing 14.2 per cent of total loss followed by Tamil Nadu (9.2 per cent) and Uttar Pradesh (8.2 per cent).

Subsequently, the per capita loss for all India is around ₹27,000 with States such as Tamil Nadu, Gujarat, Telangana, Delhi, Haryana, Goa, etc. exhibiting loss of more than ₹40,000 per person in FY21.

“All these numbers do foretell that our earlier GDP estimate at -6.8 per cent has already been significantly overshot in FY21,” Ghosh said. The report said over the months of July and August the virus has now significantly penetrated the rural areas.

The percentage of cases in rural districts to total new cases has risen to 54 per cent in August. Also, the number of rural districts with less than 10 cases have reduced significantly.

Andhra Pradesh and Maharashtra have been impacted more severely with increasing penetration in rural areas.

Based on adjustments, as per ERD’s SBI Computed Covid CPI, the actual headline inflation is much higher than the imputed inflation. Its report emphasised that this has already been substantiated by NSO CPI data revisions in June, and its own estimates show that July CPI could be higher than 7.5 per cent, instead of 6.9 per cent computed.

“The bottom line of such is that a negative GDP and a jump in inflation are only pushing back real consumption and hopes of recovery are fading,” Ghosh said.

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