The latest Ecowrap report by State Bank of India says official GDP estimates for financial year 2020-21 could see an upward revision from the -8 per cent growth estimated earlier, once the final numbers are disclosed on May 31. The report noted that the final GDP growth rate for the fiscal could be around -7.3 per cent.

Based on quarterly GDP numbers in 2020-21, Q4GDP was seen to reveal a contraction of 1.1 per cent. However, as per the SBI Nowcasting model, the forecasted GDP growth for Q4 would be around 1.3 per cent (with downward bias). “We now expect GDP decline for the full year to be around -7.3% (our earlier prediction: -7.4%),” said the report authored by Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India.

One likely consequence of any upward revision in 2020-21 estimates is a concomitant decline in 2021-22 GDP estimates. Covid-19 is still spreading in rural areas. The share that rural districts are contributing towards new cases is rising quite rapidly during May, even though overall cases have started to decline from the second week; the percentage of which has increased from 45.5 per cent in April-end to 53.6 per cent as per the latest data. Notably, this is same as the peak of 53.7 per cent observed during August-end last year, the report mentions.

Top 20 rural districts now account for around 15 per cent of country-wise new cases with hinterlands of Andhra Pradesh, Maharashtra and Karnataka continuing to be the worst affected as per the reported data.

“Though the impact of the second wave on the real economy was initially thought to be much limited (due to localised nature of lockdowns which have, however, now turned into a de facto national lockdown, better adaptation of people to work from home protocols, increased use of digital payments) in comparison with the first wave, our estimates now indicate that there might be nominal GDP loss of up to Rs 6 lakh crore during Q1 FY22 as compared to loss of Rs 11 lakh crore in Q1 FY21. Real GDP loss would be in the range of Rs 4-4.5 lakh crore and hence real GDP growth would be in the range of 10 per cent - 15 per cent (as against RBI forecast of 26.2 per cent) during Q1FY21. However, we believe that in this wave our health crisis has overwhelmed us and hence the impact on GDP in the second wave will be more from health channel than the mobility channel,” the report added.

The SBI research also noted that the deposits have shown alternate periods of expansion and contraction in 2021-22 in the first three fortnights. “It is possible that such expansion followed by contraction could indicate household stress as people getting salary credits in the first fortnight are withdrawing it in the second for health expenses/stocking up currency for precautionary motive amidst an uncertain scenario. So far, we have got only three fortnights of deposit data and this trend would be validated once we have the complete data in the first week of June,” it said.

Another interesting anecdote is that though the real GDP data across countries indicates that the situation has improved over the last year (after battling two distinct Covid waves), most countries are still in recession and their Q1 2021 (or Q4 FY21) real GDP was in contraction mode,

with an average contraction of around –0.3 per cent in the range of -6.1 per cent (UK) to 18.3 per cent (China).

“Very few countries exited recession in Q1 2021. Interestingly, had India's growth rate crossed 1.7 per cent in Q4FY21, India would have been the second fastest country after China in terms of GDP growth, and going by our estimate of 1.3 per cent 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 Ecowrap report said.