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Indian economy to grow 1.3% in Oct-Dec, FY21 contraction seen at 6.8%: DBS Bank

The unlocking of economy saw domestic demand benefiting from festive tailwinds, pent up consumption, pickup in capacity utilisation and resumption in sectoral activities, DBS Bank said.

twitter-logoBusinessToday.In | February 23, 2021 | Updated 20:30 IST
Indian economy to grow 1.3% in Oct-Dec, FY21 contraction seen at 6.8%: DBS Bank
The government is scheduled to release the GDP data for October-December quarter on Friday.

Buoyed by the decline in COVID-19 cases and reopening of economy, India's gross domestic product (GDP) is expected to rise 1.3 per cent in October-December, while it is likely to contract 6.8 per cent in financial year 2020-21, DBS Bank said in a report.

Hit by the COVID-19 pandemic and the nationwide lockdown imposed by the government in late March last year to control the spread of infections, India's GDP contracted 23.9 per cent in April-June and 7.5 per cent in July-September quarter.   

The government is scheduled to release the GDP data for October-December quarter on Friday.

"We peg 3QFY21 GVA (gross value added) estimate at 1.6 per cent y/y (year-on-year). Full year real GDP growth in FY21 is expected to register -6.8 per cent y/y, before cyclical tailwinds and base effects lift full-year FY22 to 10.5 per cent y/y, assuming a well-contained caseload and on-track vaccination programme," DBS Bank said.

While the Reserve Bank of India (RBI)  has projected Indian economy to grow 10.5 per cent in 2021-22, the Economic Survey had pegged the growth at 11 per cent for the fiscal.

A sharp improvement in COVID-19 situation and increase in public spending helped in the October-December quarter, DBS Bank said.

Also read: Indian economic recovery entered consolidation phase in January: ICRA

The unlocking of economy saw domestic demand benefiting from festive tailwinds, pent up consumption owing to the 'unlocking premium', pickup in capacity utilisation and resumption in sectoral activities, it said.

"After a slow start to the year, public spending accelerated in 2HFY21; disbursements picked up sharply to 29 per cent y/y in the December 20 quarter vs -12 per cent in the September 20 quarter," it said.  

Farm output will continue to add to growth in December quarter, joined by firmer manufacturing output, benefitting from festive demand, resumption in activities and restocking supplies. "Amongst services, financial services and public administration are likely to fare better than contact-intensive facilities like travel, airlines, and tourism."

On inflation, DBS said even as food inflation tapers off, core inflation is expected to prove sticky due to higher non-food forces via higher industrial commodity prices, bounce in global oil, domestic fuel tax rigidity, return in manufacturing pricing power, telecom price adjustments, and demand impulses on the back of cyclical rebound.

As the cyclical rebound gains momentum, along with firmer core inflation and commodity price increases, pressure to normalise policy is likely to surface for RBI.

"Liquidity management is likely to be the first stop but needs to be juggled with stable borrowing costs as high Centre and state borrowings lie ahead...We expect liquidity normalisation to be calibrated and incremental during the course of the year, accompanied by a reverse repo hike of 25bps in 2HFY21 and a change in the rate stance from 'accommodative' to 'neutral'. No change is expected in the repo rate this year," DBS Bank said.

Also read: India's GDP to expand 0.8% in Q3, FY22 growth seen at 8.5%: Barclays

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