SBI Research ups projections for economy, narrows GDP contraction to 7.4%

Deloitte says recovery depends on vaccine, spread of Covid cases

SBI Research has scaled up its projections for the economy, projecting gross domestic product (GDP) to contract 7.4 per cent during the current financial year compared to its earlier forecast of a 10.9 per cent fall.   

The author of the report, Soumya Kanti Ghosh, believes it would take seven quarters from the fourth quarter of FY21 for GDP to reach the pre-pandemic level in nominal terms.

He said the revised GDP estimates are based on SBI 'Nowcasting Model' with 41 high-frequency indicators associated with industry activity, service activity, and global economy.

Based on this model, the GDP growth for the third quarter would be around 0.1 per cent (with downward bias), Ghosh said.

Apart from Q3 FY21, the Q4 growth will also be in positive territory (at 1.7 per cent). However, all projections are conditional on the absence of another wave of infections, the report said.

Meanwhile, Deloitte India made various projections for the economy reaching pre-Covid level on the basis of three scenarios.

 

In a scenario one, Deloitte expected the economy to reach pre-crisis levels by the third quarter of 2021-22 and revive at a sustainable pace thereafter. Under this scenario, it expected several effective vaccines to be out and available and the regional spurts in infection starting to taper from June, 2021. This sceanior assumed that the total active infection cases begin to come down reasonably by August and there are no further outbreaks. The stimulus and reforms come into play with ripple effects across sectors. 

In scenario 2, the consultants projected the economy to reach pre-crisis levels in early 2022-23. This scenario assumed that 

regional infections, especially in urban cities, continue to be high and lockdowns keep getting intensive. A vaccine is not available to the population till the end of 2021, while people remain sceptical of the vaccine effectiveness, it assumed. It also assumed that the government is limited by its resources, and capital expenditure and infrastructure spend take a hit and reforms take more time to impact. 

Deloitte forecast the economy to barely reach pre-Covid levels at the end of 2022-23 in scenario 3. It is the most pessimistic scenario which assumed that the economy suffers several outbreaks and reinfections leading to a second major lockdown in March 2021. Vaccines largely remain ineffective, besides being unavailable, it assumed. Government resources are majorly directed towards saving lives and livelihood in this scenario.