SBI Research raises FY21 GDP estimate to -7.4% from -10.9% earlier

State Bank of India (SBI) Research has tempered its projection of India’s FY21 growth contraction to 7.4% from -10.9% earlier, on account of its nowcasting model which includes 41 high frequency indicators.

Over half or about 58% of these indicators, such as revenue earning of freight traffic, weekly food arrival and petrol and diesel consumption showed acceleration in the third quarter, the report released on Wednesday said.

The state-run lender’s research wing also lowered its estimate of this year’s fiscal deficit to 8% of gross domestic product (GDP) from 10.3% before, to reflect the compression in government expenditure in the current and previous quarter, according to the report.


While the model estimates marginal positive growth in the ongoing quarter at 0.1%, FY22 would see 11% growth, primarily due to the base effect, it said.

The revision aligned its forecast with that of the RBI and the market’s revised projection post-Q2, but the report noted that its projections were predicated on the absence of another wave of infections.

The RBI raised its forecast for FY21 growth to -7.5% from -9.5% earlier while global rating agency S&P revised its expectations of India’s FY21 GDP contraction to -7.7% from -9% before.

“The decline in government expenditure has been quite significant to Rs 3.62 lakh crore in Q2 FY21 from Rs 4.86 lakh crore lakh crore in Q1 FY21,” the report said, adding that data for October showed overall expenditure fell further compared to September.

From its analysis of official expenditure data, SBI Research felt the Centre could rationalise about Rs 80,000 crore of budgeted expenditure which would result in a fiscal deficit of around Rs 15.8 lakh crore

Even so, GDP growth showed a positive surprise, instilling hope that the Centre might be able to improve expenditure in the final quarter of the fiscal to boost growth, it said while lowering its fiscal deficit estimate.

According to the report, it would take another five quarters from the ongoing one for the economy to reach pre-pandemic levels, implying a permanent loss to output at 9% of GDP. It pegged the total output loss in the first two quarters of this fiscal at Rs 13 lakh crore.