‘Economy to contract by 7% in FY21’

THE AGENCY HAD EARLIER FORECAST A CONTRACTION OF 7.4% IN 2020-21 GDP NUMBERS

MUMBAI: Pencilling in a GDP growth in third and fourth quarters, SBI Research on Wednesday revised its contraction forecast for the current fiscal year to 7%.

The agency had earlier forecast a 7.4% contraction in 2020-21 GDP numbers. In April-September, the economy contracted 15.7% but the second half may see a surprise 2.8% growth, if the SBI analysis turns out to be correct.

Soumya Kanti Ghosh, group chief economic adviser at State Bank of India (SBI) said of the 41 high frequency leading indicators, 51% are showing acceleration which should help the economy turn around to the green from the third quarter with a 0.3 percentage point growth which is likely to surprise positively when the final numbers are out.

In April-June, the Indian economy contracted by a record 23.9%, but dramatically improved to -7.5% in the second quarter. In 2019-20, the economy had grown 4% and in the current fiscal year, it is on course to tank by 7%.

The consensus is -7.5-8% with the NSO pegging it at -7% and RBI at -7.5%.

“We now expect GDP decline for the full year to be around -7% compared to our earlier prediction of –7.4%. Also, Q4 growth will also be in positive territory at around 2.5%,” Ghosh said, adding promptly that the projections are conditional to the absence of any rise in infections.

“We retain our GDP forecast for FY22 at 11% (RBI has pegged it at 10.5% and the economy survey at 11.5% and the budget did not offer a GDP estimate), but with the caveat that 11% will be the floor below which it cannot fall,” he said.

Corporate results so far also reinstate the fact that third quarter would be much better than the previous one.

The corporate GVA of 1,129 companies has expanded by 14.7% in October-December compared to 8.6% in second quarter (of 3,758 companies extelecom) On the fiscal gaps, it said 9.5% may be on the higher side. Excluding off-balance sheet liabilities, fiscal deficit will be 8.7% gross tax collection estimate based on revised 2020-21 numbers and collections till December show tax collections will have a degrowth of 8.9% in March quarter on a sequential basis. But in 2021-22 collection may top the budget estimate of ₹22.17 lakh crore, or 9.9% of GDP.