Q2 GDP impact: Experts scale up full-year projections for FY21

Analysts have started revising upwards their projections for India's economic performance in the current fiscal year (2020-21, or FY21) after gross domestic production (GDP) belied market expectations in the second quarter (Q2) of FY21 by posting moderate contraction at 7.5 per cent. 

GDP had declined 23.9 per cent in the first quarter of FY21. 

While the economy will still see a fall in FY21, it is likely to be less pronounced than what experts had forecast earlier. 

QuantEco Research projects GDP to decline 8.3 per cent in the entire fiscal year, against its earlier forecast of a 9.5-per cent fall. 

Its Founder Shubhada Rao says the high frequency indicators will validate if sequential recovery of GDP in Q2 is a combination of pent-up and organic demand. 

She says a potent mix of India unlocking, extremely accommodative domestic monetary and financial conditions, government’s policy relief (for migrant workers, micro, small and medium enterprises, etc), structural reforms (in the area of food, agriculture, and manufacturing) under the ambit of Atmanirbhar Bharat Abhiyan, and gradual global recovery are panning out better than expected. 

"Hence, we mark up our 2019-20 GDP growth estimate. While we acknowledge the downside risks from a resurgence in Covid infections remain real, we believe the stringency measures, if needed, will be more local in nature," says Rao.

QuantEco's base case remains of a gradual pace of recovery continuing over the next few quarters, possibly picking up if a Covid vaccine is made available by early 2021.

CARE Ratings expects the economy to shrink 7.7-7.9 per cent in FY21, against its earlier projection of an 8.2-per cent fall. 

Its Chief Economist Madan Sabnavis attributes this revision to the upward movement witnessed in Q2 GDP, compared to the projections. 

"Our projections improved to adjust for better GDP numbers in Q2FY21, especially manufacturing," says Sabnavis. 

After four quarters of constant decline, gross value added (GVA) in manufacturing grew slightly by 0.6 per cent in Q2FY21.

"Positive growth in manufacturing has been a surprise. Since GVA is used for the organised sector, there is an upward bias in the estimate," adds Sabnavis.

ICRA now senses that GDP will fall in the range of 7-9 per cent in FY21, against its earlier estimate of 11 per cent. 

"We foresee a faster rebound in GDP in the second half (H2) of FY21, compared to our earlier forecast," says ICRA Principal Economist Aditi Nayar, adding, “We are awaiting confirmation of the durability of the festival season uptick before finalising our updated projections.”

India Ratings and Research (Ind-Ra) will revise its GDP projections. Its Chief Economist Devendra Pant says GDP numbers in Q2 were better than the agency's projections. 

"We will take stock of the situation. We will evaluate how the situation will unfold in H2," says Pant. 

Ind-Ra had estimated GDP to contract 11.8 per cent in FY21 before the release of Q2 numbers.

State Bank of India Group Chief Economic Advisor Soumya Kanti Ghosh says his earlier projection was for a 10.9-per cent fall in GDP for FY21. Now, the contraction will come down to single digits, he adds.

CRISIL Ratings Chief Economist D K Joshi says, “We will be revising GDP projections for FY21 in some days."

Motilal Oswal Research is the odd one out. 

It foresees higher contraction in GDP in FY21 than earlier anticipated. It projects GDP to fall 7.5 per cent, against the earlier 6.5 per cent. 

"We revise down our third (Q3) and fourth quarter (Q4) GDP forecasts. We now pencil in decline of 1-2 per cent year-on-year in Q3 versus a negligible decline earlier, and growth of 2-3 per cent in Q4 versus 4.2 per cent predicted earlier,” it says.