Tag: GDP growth

SBI Research cuts India’s GDP estimates for FY22, sees peak of Covid 2.0 in May, BFSI News, ET BFSI

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NEW DELHI: Economists at India’s largest bank have cut the FY22 GDP growth projection for the economy by 60 basis points, and said India could have done better to tackle the second wave of the Covid-19 pandemic.

The downgrading of growth projections was triggered largely due to restrictions being imposed by different states.

“India managed the first wave of pandemic well. However, the country is now facing an unprecedented second wave. There is no doubt India could have done better,” said economists at SBI.

The second wave of Covid-19 pandemic has shattered all records. The number of active cases crossed the 30 lakh mark for the first time since the beginning of the pandemic. In the past 24 hours, 3.79 lakh fresh cases and 3,596 deaths were reported in the country, highest for a single day.

With rising cases, the recovery rate of Covid-19 patients has also plummeted sharply from 97 per cent at the beginning of the second wave to 82.5 per cent now. This 14.5 per cent drop in recovery rate has happened over the past 69 days.

However, SBI is sensing “good news amidst all the gloom” and believes the peak of the pandemic is near.

“Given that every 1 per cent reduction in recovery rate takes around 4.5 days, it translates into around 20 days from now. Also, our estimate shows every 1 per cent reduction in recovery rate increases active cases by 1.85 lakhs. Thus we believe the peak of the second wave would come around mid-May with active cases reaching around 36 lakh at that point,” the economists wrote.

The economists say they have started noticing some deeper impact of the second wave on economic activity in the country. Its business activity index in April dipped to a new low level of 75.7, a level last attained in August 2020.

This indicates the disruption caused by increased restrictions imposed in various states. All the indicators, except for labour participation and electricity consumption have declined significantly during April.

“Given the current circumstances of partial/local/weekend lockdowns in almost all states, our growth forecast is now revised downwards. SBI’ revised FY22 growth projection now stands at 10.4 per cent for real GDP and 14.2 per cent for nominal GDP,” the economists said.

Earlier, SBI had projected real GDP growth for FY22 at 11 per cent (RBI:10.5 per cent) and nominal GDP at 15 per cent (Union Budget: 14.4 per cent) on the back of a low base effect and renewed economic momentum.

Total loss due to the second wave lockdowns is estimated at Rs 1.86 lakh crore, of which Maharashtra, Madhya Pradesh, Karnataka and Rajasthan account for 75 per cent. Maharashtra’s loss alone stands at 43 per cent.

Vaccine as public good
SBI advocated declaring Covid-19 vaccine as a public good, which it believes is the only way to fight this dreadful pandemic. In economic parlance, ‘public goods’ are defined as non-excludable and nonrival in nature.

“The primary idea of a public good is that agents must cooperate and not be combative, and then only all the players will have the opportunity to get a better payoff…When both Centre and state government cooperate with each other, both will receive benefit in the form of more vaccination, better medical facilities, and less number of cases. When both [are non-cooperative], the payoffs will be zero for both,” said SBI economists.

In the last couple of months, there have been instances when some states and central government have tussled over managing the pandemic, with each blaming the other for any mishaps.

The bank said for the 20 states it analysed, the cost of vaccines is almost 10-15 per cent of their health expenditure budget, assuming half of the population in these states will get vaccinated by the central government.

This cost is, however, only 0.1 per cent of GDP and much lower than the economic loss if restrictions occur to control the spread of pandemic which is already around 0.8 per cent of GDP.

SBI Research cuts India’s GDP estimates for FY22, sees peak of Covid 2.0 in MaySBI also cast doubt on the criticism that elections were responsible for faster spread of the virus. Many analysts and epidemiologists believe that the elections were one of the major factors behind the record cases in election states.

“In some states like Maharashtra, Delhi and Chhattisgarh, even as mobility has declined significantly, cases increased and they have shown some stabilization only recently, indicating the transmission may not be possible only through humans, but it is airborne. This makes a strong case mass sanitisation of public places for disinfection,” said SBI.



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Samiran Chakraborty, Citi, BFSI News, ET BFSI

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2021 could be a year when both the RBI and the government will have to plan for at least some amount of normalisation, says Samiran Chakraborty, Chief Economist (India), Citi in conversation with ET NOW.
Digitisation and work from home has changed fortunes of Indian IT sector in terms of availability and optimisation. When the real economy shapes up in the post Covid world, are these factors which could surprise us and create a lot of upside?
It is quite possible. It could work both ways. On the positive side, we have seen a significant improvement in profitability in the September quarter numbers for companies. Even if you adjust for factors like travel cost or advertisement and promotion costs or to some extent even wage cost, there still seems to be a residual element which could be attributed to productivity improvement.

On the other hand, because of all these physical distancing protocols to be maintained in different kinds of services and in some cases even may be in manufacturing, there is a decline in productivity which has led to somewhat higher prices — part of the reason why inflation has picked up during the Covid period. It is not just simply because of the lack of mobility issue but it could also be due to the fact that companies are being forced to abide by these physical distancing protocols leading to some productivity decline.

Both the things are working simultaneously but my sense is that over the next couple of quarters, looking at the productivity data and for wage cost, travel cost etc. we will have a much better sense of how much permanent improvement in productivity is contributing to this profitability.

We have got three important data points which are different. Bond yield is at a multi-year low, forex is at a multi-year high and rising fiscal deficit. We do not know how things will move in the Budget. How important are these three variables to judge the economy?
At least for the first two, there is a strong element of RBI intervention which is keeping those two variables where they are. Fiscal deficit is more in the control of the government to decide where they want to put it. Now while we are all discussing the nascent economic recovery, we have to keep in mind that this recovery is to some extent on the crutches of the fiscal and monetary stimulus and 2021 could be a year when both the RBI and the government will have to plan for at least some amount of normalisation.

It may not be done immediately but in the latter part of the year, normalisation will probably become a necessity and that is where these variables will start playing an important role in the economy. We are not thinking of any policy rate hikes in 2021 but to some extent surplus liquidity in the banking system might get normalised which means that rates in the system go up a little bit. So, the 10-year government bond yields can move up to about quarter over the course of the year. On the exchange rate side, the big dilemma is that because we are having a current account surplus or at least a much lower current account deficit and huge amount of capital inflows, there is a constant pressure on the currency to appreciate which the RBI does not want to do because we are simultaneously following a self-reliant India campaign and putting some sort of import curbs to promote domestic manufacturing.

If the RBI is intervening so much that it is creating surplus liquidity that will militate against the RBI bid to tighten liquidity at the latter part of the year, how RBI manages between the two is going to be very critical for 2021.

On fiscal deficit we think it is possible for the government to target about a 4.5% fiscal deficit in the Budget this year on the back of slightly lower than 7% fiscal deficit and GDP last year and that is possible by so much of expenditure compression. But if the economic growth is normalising, then the revenue side will improve on the tax revenue side while on the non-tax revenue side, a lot of divestment proposals which could not fructify in FY21 might be carried over to FY22 and help the FY22 revenue collection. 4.5% fiscal deficit and GDP in our view is quite possible for next year.



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