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India’s GDP May Grow Faster Than Estimated in Q4 but FY22 Growth May Falter

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There is both good news and bad news on the economic front for India, which is looking to come out from the second and deadlier wave of the Covid pandemic.

The good news is that the country’s GDP is expected at a faster pace than expected in the January-March quarter of 2021 as a pick up in economic activity during the period of fading pandemic surge has resulted in higher than expected output from various sectors.

But the bad news is that Covid 2.0 and continuing lockdowns in various parts of the country may push all hopes of faster economic recovery in FY22 downwards, with GDP only managing to grow in single digit this year rather than high double-digit growth projected earlier.

As per an Ecowrap report prepared by a research team from SBI headed by banks group chief economic adviser Soumya Kanti Ghosh, GDP growth for Q4 (FY21) would be around 1.3% (with downward bias) as against NSO projection of a negative -1%.

With this, the report has projected that GDP decline for the full year would now be around 7.3% (compared to our earlier prediction of -7.4%).

“However, due to renewed lockdowns in almost all states since April, 21 owing to rise in infections, we believe that real GDP growth for FY22 would be in single digits as against our earlier forecast of 10.4%,” the SBI Ecowrap report said.

The report’s assertion on higher Q4 growth has also been based on corporate performance during the period. It said that corporate results so far also reinforce the fact that Q4 growth would be much better than the Q3 growth. The corporate GVA of 625 companies has expanded by 62.04% in Q4 as compared to 12.98% growth in Q3 (of 4164 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,” Ecowrap report said.

Though the country-wise real GDP data indicates that the situation has improved over one year (after battling the second/third wave of Covid-19), most countries are still in recession, and their Q1 2021 (or Q4 FY21) real GDP growth was in contraction mode. The decline of average real GDP for 24 countries has improved from 2.9% in Q4 2020 to a decline of 0.3% in Q1 2021. Very few countries exited recession in Q1 2021, with contraction ranging from (-)6.1% (UK) to 18.3% (China).

Interestingly, had India’s growth rate crossed 1.7% in Q4FY21, India would have been the second fastest country after China in terms of GDP growth, and going by Ecowrap reports estimate of 1.3% GDP growth, India would still be the 5th fastest growing country amongst 25 countries (that have released their GDP numbers so far).

“We hope for such optimism in terms of Covid-19 numbers and vaccination soon,” the report said.


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