Indian economy may shrink by 16.5 per cent in Q1: SBI report

MUMBAI: The Indian economy may contract by 16.5 per cent in the quarter ended June, compared to earlier estimates of a decline of more than 20 per cent, on better-than-expected corporate earnings, according to economists at top lender State Bank of India.

“We revisit our GDP growth estimation for Q1 FY21 (at lower than -20 per cent)and now peg it at much lower contraction: -16.5 per cent, though with the relevant caveats in the current uncertain scenario,” SBI economists said in a note on Monday

They pointed that specifically, degrowth in Corporate GVA (gross value added) is significantly better than revenue degrowth in Q1FY21 as far as the results of the listed companies are concerned.

“In principle, revenue decline of listed companies has been far outstripped by cost rationalization thereby not impacting margins. Our Composite Leading Indicator and Monthly Acceleration Tracker also support the same. Our Business Disruption Index has also shown a decline in the most recent week,” the economists said/

However, they believe the rural recovery is unlikely to support such pace in subsequent quarters as overall, the per capita monthly expenditure in urban areas is at least 1.8 times of rural areas and rural wage growth in real terms might still be negative.

“ This indicates that rural recovery will not have much impact on GDP growth. Thus, it is of utmost importance to unveil further steps to support growth,” they added.

SBI economists also pointed the percentage of cases in rural districts to total new cases has risen to 54 per cent in August, and the number of rural districts with less than 10 cases have reduced significantly.

They said that while currently India’s recovery rate is around 71 per cent, that may not be the end of the story.

“In US, the peak has come twice. Apart from this, the current doubling rate in India is around 22 days, with the world average at 43 days and India also has the highest death per million rate amongst major Asian economies,” they said expressing their concerns.

The spread of the Covid-19 pandemic has also reignited the debate between lives and livelihood to between lives and lives.

SBI economists estimated the state-wise additional mortality in addition to Covid mortality due to a 10 per cent decline in state domestic product (the average across all states is 16 per cent).

“ The results are worrisome and indicate that mortality rates may increase by 0.5-3.5 per cent additionally as we are navigating through Covid by imposing restrictions on livelihoods through unplanned exit from lockdowns and unplanned entry into fresh lockdowns across states,” they said,

In fact, the isolation beds per 1 lakh population is significantly low in several states like UP, Bihar, West Bengal, while it is highest in Karnataka followed by Maharashtra.

Using the bottom-up approach, they also estimated total GSDP loss due to Covid-19 is at 16.8 per cent of GSDP. GSDP is the sum of all value added by industries within each state or union territory and serves as a counterpart to the national gross domestic product

State-wise analysis indicates that top 10 states accounted for 73.8 per cent of total GDP loss with Maharashtra contributing 14.2 per cent of total loss followed by Tamil Nadu (9.2 per cent) and Uttar Pradesh (8.2 per cent), the report said.

Subsequently, the per capita loss for all India is around Rs 27,000 with states like Tamil Nadu, Gujarat, Telangana, Delhi, Haryana, Goa, etc. exhibiting loss of more than Rs 40,000 per person in FY21, the economists added.

They also said that based on adjustments, as per SBI-computed Covid CPI inflation, the actual headline inflation is much higher than the imputed inflation, and this has already been substantiated by NSO CPI data revisions

They pointed that the lockdown and non-availability of data have led to NSO estimating the various components of CPI Inflation.

“The bottom line of such is that a negative GDP and a jump in inflation are only pushing back real consumption and hopes of recovery are fading. We really hope for some good news with both preventative and curative drugs currently being worked out for the virus!,” they said.