With first quarter (Q1) gross domestic product (GDP) contraction of 23.9 per cent revealing a deeper economic malaise, State Bank of India’s Economic Research Department has now estimated that the decline in FY21 growth will likely be in double-digits, around 10.9 per cent, against the previous estimate of 6.8 per cent.

SBI’s Economic Research Department, in its report Ecowrap, emphasised that the contraction in Q1 (April-June) FY21 GDP due to the nation-wide lockdown imposed on March 25, 2020, in the wake of the Covid-19 pandemic, is much worse than market and its own estimates.

“It is now clearly visible that Q2 (July-September) decline will also be in double-digits. 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),” Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI, said.

As per Ecowrap, Q2 real GDP decline will be in the range of –12 per cent to –15 per cent, Q3: -5 per cent to –10 per cent and Q4: -2 per cent to -5 per cent.

“It seems that momentum of economic pick-up has slowed down in Q2 FY21 and our Business Disruption Index is nearly at the same level as on August 24 as it was at end-June,” Ghosh said.

Q1 contraction

Ecowrap observed that the GDP contraction in Q1FY21 is India’s worst growth performance since the country started reporting quarterly GDP data in 1996. In the 2004-05 base, India’s lowest quarterly GDP growth was 1.66 per cent in Q3FY03.

Till now, GDP growth data of 60 countries has been released. Apart from China and Vietnam all economies exhibited decline in growth. The average decline of 60 economies in April-June 2020 is 12.2 per cent, compared to 1.4 per cent decline in January-March 2020.

The report noted that 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 5.7 per cent, against an average 13.5 per cent in the previous two quarters.

“This was expected as from the beginning, the Government had imposed least restrictions on this sector.

“Also, till June 2020, the spread of Covid-19 was primarily in urban areas, and rural areas were almost unscathed from the pandemic. However, Q2 could see a reversal of sorts with rural areas now in the grip of Covid-19,” Ghosh said.

The report underscored that Industry is the worst affected sector with decline of 38.1 per cent in Q1 FY21, compared to 4.2 per cent growth in Q1 FY20. The Services sector exhibited a decline of 20.6 per cent in Q1 FY21, in comparison to 5.5 per cent growth in Q1 FY20.

Ghosh said: “As anticipated Private Final Consumption Expenditure (PFCE) growth collapsed as C-19 containment measures reduced consumption to mostly essential items.

“...we will see at least around 14 per cent decline in PFCE growth in FY21, against an average of 12 per cent growth for the nine-year period ended FY20. This indicates an average swing of 26 per cent in the current fiscal indicating a consumption washout.”

The pandemic has significantly impacted the expenditure pattern under individual consumption expenditure components like health and education, he added

Positive developments

The Reserve Bank of India’s sector-wise credit-data for the month of July indicates that except Industry, credit has increased to all other major sectors during the month.

There has been a significant increase in credit to Micro and Small Enterprises, Agri & Allied and Personal Loan segments.

“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 roll-out of ‘work from home’ measures and banking being an essential service,” Ghosh said.

Further, some of the sectors where new project announcements were seen during Q1 include Roadways, Basic Chemicals, Electricity, and Community Services such as Hospitals, and Water Sewage Pipelines, among others.

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