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India’s Real GDP likely to Contract by 10.9% in FY21, All 4 quarters to Witness Negative Real Growth: SBI Ecowrap Report

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GDP decline for full FY21 seen at around 10The State Bank of India’s (SBI) Ecowrap report estimated that the real Gross domestic Product(GDP) for FY21 is expected to shrink by around 10.9%(-10.9%), a decline of full year growth, against its earlier estimate of 6.8%. The report comes after India’s economy contracted by a record 23.9% in 1st (April-June) quarter of FY21. The report added that all the quarters of FY21 will exhibit negative real GDP growth. 

Estimated Real GDP Declines of Quarters of FY21

Q2: From -12% to -15%; Q3: Between -5% to -10%; Q4:  From the range between -2% to -5%

Highlights of the Report

1st Quarter

i.The contraction in the 1st Quarter was due the nationwide lockdown imposed on March 25, 2020, in the wake of the COVID-19 pandemic. 

ii.It is India’s worst growth performance since India started to report quarterly GDP data in 1996. It is  far worse than the market and its estimates.

Note– India’s lowest quarterly GDP growth was 1.66%in Q3FY03 of the 2004-05 base.

PFCE

i.As expected the Private Final Consumption Expenditure (PFCE) growth collapsed as the measures of COVID-19 has reduced the consumption of mostly essential items.

ii.The share of the private consumption expenditure will remain on the higher side in overall GDP estimate, as investment demand will not be recovered due to unused capacity

iii.If it remains at 57% of GDP in nominal terms, there will be about a 14% decline in PFCE growth in FY 21, against an average of 12% growth for the nine-year period ended FY20. 

iv.This represents an average fluctuation of 26% in the current fiscal indicating a consumption washout

Key Info

  • As of now, the GDP growth data of 60 countries has been released. Excluding China and Vietnam all the economies revealed a decline in growth.
  • The average decline of 60 economies in April-June 2020 is 12.2 %, compared to 1.4 % decline in January-March 2020.

Recent Related News:

i.In a meeting with the 15th Finance Commission the Union Health Minister Harsh Vardhan highlighted that the government aims to gradually increase the public health expenditure to 2.5% of Gross Domestic Product(GDP) by 2025.

ii.According to The report titled, ’Implications of AI on the Indian Economy’ by National Association of Software and Services Companies (NASSCOM) along with the Indian Council for Research on International Economic Relations (ICRIER) and Google, a unit increase(measured as the ratio of AI to total sales) in Artificial Intelligence(AI) intensity can result in a 2.5% increase in India’s Gross Domestic Product(GDP) in the immediate term.

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