Contraction in GDP could be a lot lesser than estimated: Dinesh Kumar Khara, SBI Chairman

Mumbai: Indian economy’s contraction could be a lot less than estimated earlier as business activity bounces back from abysmal levels driven by opening up of factories and structural shifts in consumer behaviour, though corporate investments may have to wait longer, said State Bank of India chairman Dinesh Kumar Khara.

“The numbers which have been talked about on contraction are changing very fast,” Khara told ET in an interview. “As the economy opens up these numbers will change dramatically.”

Consumption is leading the recovery with spending accelerating and in many cases rising to pre-Covid levels seen in January, he said.


‘Capacity Utilisation not Enough’
“India is a very strong consumer economy that had come to a standstill because people were more interested in conserving cash,” said Khara. “Once there is certainty that life after Covid will be as normal as it was, I am sure the pent-up demand, supported by the regular demand, will probably pull the economy.”

“Certain sectors have taken a beating—like tourism, hospitality, aviation,’’ said Khara. “Perhaps these sectors will take some time to repair but the major evolution of the ecommerce sector will lead to a new consumer behaviour never seen before.’’

But when it comes to corporate activity and investments, Khara said, this was not in sight yet. “The capacity utilisation in the economy is around 69-70%,” Khara said. “When it comes to the fresh investment cycle that is seen when this inches beyond 80%. I think once it reaches that level, there will be a tendency among corporates to evaluate fresh investment plans.’’

The Reserve Bank of India has projected India’s economy to contract as much as 9.5% this fiscal year after a record 23.9% slump in the June quarter. But activity has since gained momentum with acceleration in sale of cars, motorcycles, cement and steel raising hopes of a faster recovery even as some sections remain crippled.