Indian economy to contract by 7% in current fiscal

By Administrator_India

Capital Sands

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 per cent.

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

Soumya Kanti Ghosh, group chief economic adviser at State Bank of India said of the 41 high frequency leading indicators, 51 per cent 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 per cent, but dramatically improved to -7.5 per cent in the second quarter. In 2019-20, the economy had grown 4 per cent and in the current fiscal year, it is on course to the tank by 7 per cent.

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

We now expect GDP decline for the full year to be around -7 per cent compared to our earlier prediction of 7.4 per cent. Also, Q4 growth will also be in positive territory at around 2.5 per cent, 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 per cent (RBI has pegged it at 10.5 per cent and the economy survey at 11.5 per cent and the budget did not offer a GDP estimate), but with the caveat that 11 per cent 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 per cent in October-December compared to 8.6 per cent in the second quarter (of 3,758 companies ex- telecom)

On the fiscal gaps, it said 9.5 per cent may be on the higher side. Excluding off-balance sheet liabilities, the fiscal deficit will be 8.7 per cent gross tax collection estimate based on revised 2020-21 numbers and collections till December show tax collections will have degrowth of 8.9 per cent in March quarter on a sequential basis. But in 2021-22 collection may top the budget estimate of Rs 22.17 lakh crore or 9.9 per cent of GDP.

Meanwhile, cash balances of the Centre have declined from the peak Rs 3.4 lakh crore to around Rs 2.3 lakh crore as on February 8.

Given that 85-90 per cent of such cash balances belonged to states that were invested with the Centre, it is possible that states before the closing of accounts of 2020-21 want to spend the cash rather than preserving.

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