It is estimated that FY21 GDP will face a contraction of 7.4 per cent, compared to 10.9 per cent estimated earlier,
The Indian economy has significantly recovered in the current fiscal’s second quarter, from the record slump of a 23.9 per cent in the first quarter; however, it still has a long way to go to reach the pre-pandemic levels. India’s economy will take almost 7 quarters from Q4 FY21 to reach the pre-pandemic level in nominal terms, and there will be a permanent output loss of around 9 per cent of GDP, said a report by SBI Research. On the back of a better than expected recovery, it is estimated that FY21 GDP will face a contraction of 7.4 per cent, compared to 10.9 per cent estimated earlier, SBI Ecowrap report said. The forecasted GDP growth for Q3 would be around 0.1 per cent.
Out of the 41 high frequency leading indicators, 58 per cent are showing an acceleration in Q3. The positive momentum of various economic indicators includes RTO transactions, revenue collection at RTO, revenue earning of freight traffic, weekly food arrival, and a higher petrol and diesel consumption that continued in November. The business activity index has also shown improving momentum after a modest decline in the week of Diwali. Given the base effect, the FY22 GDP is expected to be at 11 per cent. However, the research underlined that all projections are conditional on the absence of another wave of infections.
On the other hand, even as the growth outlook has improved, the decline in Government expenditure has been quite significant to Rs 3.62 lakh crore in Q2 FY21 from Rs 4.86 lakh crore in Q1 FY21. The revenue and capital expenditure both declined in Q2 compared to Q1, with larger decline witnessed in revenue expenditure. Moreover, October data showed further decline in overall expenditure compared to September.
Meanwhile, the SBI Research estimated that a large part of fiscal expenditure by the Government has been indirect and are off-balance sheet items. Thus, the Government might be able to spend in Q4 to resurrect growth further. It has revised the fiscal deficit estimates for FY21 at 8 per cent of GDP.