State Bank of India’s economic research department has revised it real GDP projection for FY22 to 7.9 per cent from 10.4 per cent earlier, with its analysis showing a disproportionately larger impact of the second wave of Covid-19 pandemic on the economy.

The Department, in its report “Ecowrap”, imparted an upward bias to this number with the fervent hope of 1 crore vaccinations per day beginning mid-July as per government projections.

“However, our analysis shows a disproportionately larger impact on economy this time and given that rural is not as resilient as urban, the pick up in pent-up demand is unlikely to make a large difference in FY22 GDP estimates, and hence it could only be a modest pick up,” said Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI.

For the current financial year, GDP outlook will be impacted by the trajectory of international commodity prices which have risen sharply during the year, as per Ecowrap.

Consumption impact

Further, the pass-through impact of higher commodity prices will be visible in domestic prices thus impacting consumption during the year.

Also read: Moody’s pegs India GDP growth at 9.3% in FY22

The report observed that the overall consumption trajectory will depend on the recovery in services “Trade, hotels, transport, communication & services related to broadcasting” which supports roughly 25 crore households. Corporate, in the listed space, reported better growth numbers across parameters in Q4 (January-March) FY21, but this trend may soon reverse.

The report observed that after registering nominal loss of ₹13.4-lakh crore in H1 (April-September) FY21, the gain in H2/October 2020 - March 2021 (of ₹7.3-lakh crore) resulted in overall annual loss of ₹6.1-lakh crore. Real loss on the other hand stood at ₹10.6-lakh crore in FY21.

“This is a peculiar characteristic that is being exhibited in FY21 data. Normally, the annual increase in nominal GDP is more than the annual increase in real GDP, which is quite obvious given the fact that inflation is always in positive territory in India. However, in FY21 the contraction in real GDP was more than the contraction in nominal GDP,” Ghosh said.

Third wave

Meanwhile, the report assessed that the average duration of third wave for top countries is 98 days and that of second wave is 108 days, with third wave peak as a multiple of second at 1.8 and second wave as a multiple of first at 5.2 (for India it was at 4.2).

Also read: Manufacturing PMI slides to 50.8, job shedding accelerates

International experience thus suggests that the intensity of third wave is as severe as the second wave, according to Ecowrap. However it is also observed that in third wave, if we are better prepared, the decline in serious case rate will lead to less number of deaths.

The department’s analysis shows that if serious cases decline from 20 per cent to 5 per cent (due to better health infrastructure and rigorous vaccination) in the third wave, then the number of deaths in the third wave could significantly reduce to 40,000 as compared to current deaths of more that 1.7 lakh.

“So vaccination should be the key priority, especially for the children who could be the next vulnerable group. With around 15-17 crore children in the 12-18 age bracket, India should go for an advanced procurement strategy like that adopted by developed nations to inoculate this age-group,” emphasised Ghosh.