Bank’s research team had earlier projected economy to shrink 10.9% this fiscal
India’s GDP is expected to shrink 7.4% in FY21 on a better-than-projected recovery, SBI said in a research report, upgrading its earlier forecast of a 10.9% contraction.
SBI’s research team also opined that it would take seven quarters from the fourth quarter of FY21 for GDP to reach the pre-pandemic level in nominal terms.
“We now expect GDP decline for the full year to be in single digits at 7.4%… aligned with RBI and markets’ revised forecasts,” SBI said in its research report.
It said the revised GDP estimates were based on SBI’s ‘Nowcasting Model’ with 41 high-frequency indicators associated with industry activity, service activity, and the global economy.
Based on this model, GDP growth for third quarter was forecast to be about 0.1% (with downward bias).
Out of the 41 high-frequency indicators, 58% were showing acceleration in the third quarter.
Apart from Q3, the growth in Q4 would also be in positive territory (at 1.7%). However, all projections were conditional on the absence of another wave of infections, SBI said in its report.
FY22 GDP growth was forecast at 11%, primarily due to base effect.
Govt. spending crucial
It further said even as growth outlook had improved, the decline in government expenditure had been quite significant to ₹3.62 lakh crore in Q2, from ₹4.86 lakh crore in Q1.
“We believe that a large part of fiscal expenditure by the government has been indirect… This gives us hope that the government might be able to spend in Q4 to resurrect growth further,” SBI’s researchers said.
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