India's gross domestic product (GDP) is likely to expand by 1.3 per cent in January-March quarter of financial year 2020-21, thereby leading to a less-than-expected 7.3 per cent contraction during FY21, according to SBI, which had earlier projected the full year contraction to be 7.4 per cent.
The Central Statistics Office (CSO) had projected 8 per cent GDP contraction in FY21. However, this number is likely to be revised upwards when GDP data is released on May 31, the research wing of State Bank of India (SBI) said in its 'Ecowrap' report on Tuesday.
"Based on quarterly GDP numbers in FY21 and full year FY21 GDP estimates, Q4 GDP was projected to reveal a contraction of 1.1 per cent. Based on SBI Nowcasting model the forecasted GDP growth for Q4 would be around 1.3 per cent (with downward bias). We now expect GDP decline for the full year to be around (-)7.3 per cent," the report said.
Hit by the pandemic and the nationwide lockdown imposed to curb the spread of infections last year, India's economy contracted during the first half of FY21, before returning to positive territory in October-December quarter with a growth of 0.4 per cent.
The report said that the corporate results so far reinforce the fact that Q4 growth would be much better than in Q3. The corporate gross value added (GVA) of 625 companies has expanded by 62.04 per cent in Q4 as compared to 12.98 per cent growth in Q3 of 4,164 companies.
"However the entire projection for Q4 FY21 is dependent on how much the past data will be revised by NSO. Past experience on data revision indicates that apart from providing data for Q4, NSO also revises quarterly data for present/previous fiscal year and annual GDP estimate," it added.
The upward revision in FY21 GDP estimates will also lead to a decline in growth projection for FY22. Besides, the lockdowns imposed by states to deal with the second wave of COVID-19 pandemic will also hit growth in April-June quarter of FY22.
"Though the impact of the second wave on the real economy was initially thought to be much limited in comparison with the first wave, our estimates now indicate that there might be nominal GDP loss of up to Rs 6 lakh crore during Q1 FY22 as compared to loss of Rs 11 lakh crore in Q1 FY21," Ecowrap said.
Real GDP loss would be in the range of Rs 4-4.5 lakh crore, and hence real GDP growth would be in the range of 10-15 per cent as against RBI forecast of 26.2 per cent during Q1 FY22, the report said.
SBI said the health crisis has overwhelmed the system and hence the impact on GDP in the second wave will be more from health channel than the mobility channel. Besides, sequential momentum of leading indicators is also at an all-time low, it added.