India’s GDP growth is likely to be at 1.2 per cent in the January-March quarter (Q4) of the previous fiscal (2019-20), as economic activity came to a standstill in the last week of March due to the nationwide lockdown to contain the spread of COVID-19, a State Bank of India report has said.
According to the SBI’s research report ‘Ecowrap’, gross domestic product (GDP) growth is likely to be 4.2 per cent for the full year of FY20. It is expected to contract by (-) 6.8 per cent for the ongoing FY21. The Q4 GDP growth number for FY20 will be announced by the National Statistical Office (NSO) on May 29.
“We now believe that Q1 GDP FY21 loss will be humongous and could even exceed 40 per cent,” the SBI report said. When India had first imposed a lockdown, GDP estimate was 2.6 per cent and since then it has been progressively reduced to a negative 4.7 per cent, with nominal GDP witnessing a contraction, it said.
“However, given that the States are now taking a staggered approach in terms of activities in red, green and orange zones, we believe that a bottom-up approach estimation to growth could be more appropriate than an earlier top down approach,” it added.
Subsequently, SBI estimated the district-wise, zone-wise loss in GSDP for each state and found that total GSDP (gross state domestic product) loss due to COVID-19 for states stands at Rs 30.3 lakh crore, which is 13.5 per cent of total GSDP. The loss is maximum (around 50 per cent) in red zones and where almost all the big districts of India are located. The combined loss of orange and red zone is around 90 per cent of total loss. “The loss in green zone is the least as 80 per cent of population in this zone is located in rural areas which are almost open for all activities,” it said.
The Ecowrap said state-wise analysis indicates that top 10 states accounted for 75 per cent of total GDP loss, with Maharashtra contributing 15.6 per cent of total loss, followed by Tamil Nadu (9.4 per cent) and Gujarat (8.6 per cent). These three states also have the largest number of confirmed COVID-19 cases in India, it said.
According to SBI, one interesting aspect of data is the difference between GDP and GVA (gross value added). Normally the difference between GDP and GVA growth rate is not large, but this time due to huge losses in net indirect taxes the difference will be quite big. “We estimate real GVA growth could be at – 3.1 per cent in FY21 and real GDP growth at – 6.8 per cent in FY21,” it said.
SBI said GDP numbers for Q2 of 2020-21 could witness a smart recovery and clock 7.1 per cent, if the country is able to sustain the demand. “Q3 and Q4 growth numbers could also look much better, with an average of 6 per cent, but the Q2 bump could come down with the immediate bust in pent up demand in Q2 subsiding subsequently,” it said.
However, things could rapidly change as the income and job loss could again propel the country towards a lower equilibrium after the initial bump up.
“We thus believe the government might be looking at the data more closely to prevent such loss in momentum in Q3 and Q4 and even come up with another targeted package later in the year,” the report said.
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