Real GDP To Contract By 10.9 Percent In FY21: SBI


After the country’s economy contracted by a record 23.9 percent in April-June quarter, real GDP for entire FY21 is expected to shrink by 10.9 percent, according to State Bank of India’s research report – Ecowrap. It had earlier estimated real gross domestic product (GDP) at (-) 6.8 percent for the current fiscal.

The first quarter GDP contraction compares with 3.1 percent growth in the preceding January-March quarter and 5.2 percent expansion in the same period a year back.

“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 percent),” the research report stated.

It estimates Q2 real GDP decline in the range of (-) 12 percent to (-) 15 percent, while Q3 GDP is seen between (-) 5 percent and (-) 10 percent. Q4 is expected to be in (-) 2 percent to (-) 5 percent range.

The report said the country’s GDP growth plunged to 23.9 percent in Q1 FY21 due to the nationwide lockdown imposed on March 25, 2020, in the wake of the COVID-19 pandemic and is much worse than market and its estimates.

As anticipated private final consumption expenditure (PFCE) growth collapsed as COVID-19 containment measures reduced consumption to mostly essential items, it said.

With investment demand not seeing recovery due to unutilised capacity, the share of private consumption expenditure will remain on the higher side in overall GDP estimate, it noted.

“Assuming that it remains at 57 percent of GDP in nominal terms, we will see at least around 14 percent decline in PFCE growth in FY21, as against an average of 12 percent growth for the nine-year period ended FY20,” the report said.

This indicates an average swing of 26 percent in current fiscal indicating a consumption washout, it added.

The pandemic has significantly impacted expenditure patterns under individual consumption expenditure components like health and education, the report stated.

It, however, sees two positives amidst all these numbers.

“First, RBI sector-wise credit-data for the month of July indicates that except industry, credit has increased in all other major sectors in July. There has been a significant increase in credit to MSE (micro and small enterprises), agri and allied and personal loans,” the report said.

Second, some of the sectors where new projects announcements were seen during the first quarter include roadways, basic chemicals, electricity, community services such as hospitals, water sewage pipelines, it said.

According to the research report, there is a need to revive sectors such as construction, trade and hotels, aviation.

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 endeavour, it added.