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New curbs on the movement of people or restrictions on businesses are a risk to the nascent recovery, given that gains in the third quarter (Q3/October-December) probably came from the reopening of the economy, per State Bank of India’s economic research report “Ecowrap”.
The report observed that India’s economy exited the recession and grew by 0.4 per cent in Q3/October-December FY21 after contracting 24.4 per cent in Q1 (April-June) and 7.3 per cent in Q2 (July-September).
“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).
“But as India has seen an uptick in cases over the last few weeks, it has raised the risk of a new round of localised lockdowns,” said Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI.
Fourth quarter (Q4/January-March) FY2021 GDP (gross domestic product) growth, however, is estimated to decline because of a statistical aberration with food subsidy clean up, the report said.
The report estimated GVA (gross value added) for Q4FY21 at 2.7 per cent. It observed that GVA is a better estimate to gauge economic recovery in the current background when tax numbers are notoriously fickle.
For the full fiscal GDP growth is expected to decline by 8 per cent and GVA growth by 6.5 per cent. For FY22, SBI’s economic research team still expects 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 basis points (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),” Ghosh said.
The report estimated the nominal loss of Rs 13.2 lakh crore in H1 (April-September) 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 SBI’s economic research department believez that FY21 loss would be still less than the NSO (National Statistical Organisation) estimate.
As per the report, for FY21, agriculture is expected to increase by 3.0 per cent as against 4.3 per cent growth in FY20.
It also stated that in FY21, industry sector is expected to contract by 8.2 per cent as against 1.2 per cent decline in FY20.
“For FY21, services sector is expected to contract by 8.1 per cent as against 7.2 per cent growth in FY20,” the report mentioned.
Better credit demand
Ghosh observed that the real and nominal gross fixed capital formation growth have turned positive in Q3, which is a good sign and hopefully it will translate into better credit demand.
Investment scenario, which can be better gauged by the actual tenders floated than announcements, reflects improved optimism in the third quarter, with number of tenders published increasing by 23 per cent by numbers and 16 per cent by amount as compared to Q2FY21. Overall, 12240 tenders were published in Q3FY21 with an amount of Rs 2.14 lakh crore, the report said.
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