SBI cuts FY22 GDP growth estimate to 7.9%; recovery to be 'W-shaped'

The economists at the state-run lender seemed to attribute the impact of the second wave of Covid infections as a key factor for the revision in the growth estimate, and pitched for faster vaccination

State Bank of India (SBI) economists on Tuesday sharply slashed their FY22 GDP growth estimates to 7.9 per cent — the lowest among all analysts — from the earlier projection of 10.4 per cent.

The economists at the state-run lender seemed to attribute the impact of the second wave of Covid-19 infections as a key factor for the revision in the growth estimate, and pitched for faster vaccination.

“… our analysis shows a disproportionately larger impact on the economy this time and given that rural is not as resilient as urban, the pick-up in pent-up demand is unlikely to make a large difference in FY22 GDP estimates, and hence it could only be a modest pick-up,” they said.

The SBI economists said the increasing international commodity prices will also have an impact on the GDP growth, and added that the overall consumption trajectory will depend on the recovery in “trade, hotels, transport, communication and services related to broadcasting” services that support roughly 250 million households.

They, however, said that at Rs 145.8 trillion, the real GDP for FY22 will be “slightly higher” than those in FY20, and called it a “W-shaped” — and not the earlier anticipated “V-shaped” — recovery with two troughs.

The Reserve Bank of India has maintained its growth estimate at 10.5 per cent, despite the emergence of the second wave. It may have a relook at the number at this week’s policy review.

Other analysts have been revising down their estimates after the devastating second wave, with an 8.5 per cent growth being lowest among the predictions.

Official data released on Monday said the economy grew faster than expected at 1.6 per cent for the fourth quarter of FY21, resulting in a contraction of 7.3 per cent for the entire fiscal.

The SBI economists said an “upward bias” to its growth estimate of 7.9 per cent is possible if the country delivers on the stated aim of 10 million vaccines a day by mid-July.