Around 10.9% Contraction in GDP is Likely in FY21: SBI Ecowrap

After the country's economy contracted by a record 23.9 per cent in April-June quarter, real GDP for FY21 is expected to shrink by 10.9 per cent, according to State Bank of India's research report - Ecowrap.

It had earlier estimated real gross domestic product (GDP) at (-) 6.8 per cent for the current fiscal.

The first-quarter GDP contraction compares with 3.1 per cent growth in the preceding January-March quarter and 5.2 per cent expansion in the same period a year back.

"Our preliminary estimate indicates that all the four quarters of FY21 will exhibit negative real GDP growth, and decline of full year growth will likely be in double digits (around 10.9 per cent)," the research report stated.

As anticipated private final consumption expenditure (PFCE) growth collapsed as COVID-19 containment measures reduced consumption to mostly essential items, it said.

With investment demand not seeing recovery due to unutilised capacity, the share of private consumption expenditure will remain on the higher side in overall GDP estimate, it noted.

"Assuming that it remains at 57 per cent of GDP in nominal terms, we will see at least around 14 per cent decline in PFCE growth in FY21, as against an average of 12 per cent growth for the nine-year period ended FY20," the report said.

This indicates an average swing of 26 per cent in current fiscal indicating a consumption washout, it added.

The pandemic has significantly impacted expenditure patterns under individual consumption expenditure components like health and education, the report stated.

It, however, sees two positives amidst all these numbers.

"First, RBI sector-wise credit-data for the month of July indicates that except industry, credit has increased in all other major sectors in July. There has been a significant increase in credit to MSE (micro and small enterprises), agri and allied and personal loans," the report said.

According to the research report, there is a need to revive sectors such as construction, trade and hotels, aviation.

Restoring transportation services and giving push to infrastructure by issuing special bonds to RBI like perpetual bonds must also be explored apart from supporting states through fiscal measures in their endeavour, it added.