SBI revises FY21 GDP growth estimate to -7.4% from -10.9%

SBI Research, in its latest Ecowrap report, says GDP recovery has been better than expected and based on it, the FY21 GDP estimate has been revised to -7.4%  from earlier -10.9%. SBI's revised GDP estimates are based on 'Nowcasting Model' with 41 high-frequency indicators associated with industry activity, service activity, and global economy showing recovery.

Based on this model, the GDP growth for Q3 is estimated at 0.1 per cent, with a downward bias. "Additionally, out of the 41 high frequency leading indicators, 58 per cent are showing an acceleration in Q3," says the report.

Also read: Q2 GDP growth shows surprising resilience: Is worst over for Indian economy?

The report adds that there's been a positive momentum of various economic indicators -- RTO transactions, revenue collection at RTO, revenue earning of freight traffic, weekly food arrival, petrol and diesel consumption continued in November.

"Even our business activity index, which is based on high-frequency indicators, shows improving momentum after a modest decline in the week of Diwali," SBI Research said.

It estimated that due to these effects, the FY22 GDP growth would be at 11% primarily due to base effect, provided there's no other wave of COVID-19 infections. "It will take almost 7-quarters from Q4 FY21 (and 5-quarters from now) to reach the pre-pandemic level in nominal terms and there will be a permanent output loss of around 9% of GDP," says the report.

Also read: RBI continues to wait and watch; limited scope for policy freedom: SBI Ecowrap

Despite the improvement in the growth outlook, the decline in government expenditure has been quite significant to Rs 3.62 lakh crore in Q2 from Rs 4.86 lakh crore in Q1. "The revenue and capital expenditure both declined in Q2 compared to Q1, with larger decline witnessed in revenue expenditure," says the report.

In October, the data shows a further decline in expenditure compared to September.  "A large part of fiscal expenditure by the government is indirect and off-balance sheet items. For example, the free food grains distribution to the poor through PDS might be taken as off-balance sheet adjustment with the FCI," says the report.

The stress in place of the retail sector across banks is perhaps a tad overblown, it said, adding the trends need to be looked at for the next couple of months before deciphering the quality of the retail book.

However, there is one learning for retail credit scoring models of banks and credit bureaus. "Between 2008 and 2020, various parts of Indian retail portfolio have faced crisis-like conditions - more often associated with natural calamities than pure economic shocks. So clearly there is enough systemic data available with the credit bureau and with large lenders where the behaviour of crisis susceptible borrowers can be studied," the report said.

Also read: Need to be watchful about demand sustainability after festivals: Shaktikanta Das