Citing continuous revisions in India's GDP estimates as the current norm, State Bank of India (SBI) revised their second-quarter (Q2) GDP to -10.7 per cent from -12.5 per cent with a positive bias, in a research report from SBI Ecowrap on Friday.
The report titled, "Positive events improve India's Q2 GDP projections: Losses reduced but reasons to remain cautious remain," was authored by Dr Soumya Kanti Ghosh, SBI's chief economic adviser. We are revising our Q2 GDP growth to -10.7 per cent (earlier -12.5 per cent) with a positive bias, based on our nowcasting model with 41 high-frequency indicators, associated with industry activity, service activity, and global economy. Our estimate of Q2 Financial Year (FY) 2021 (or Q3 2020) is aligned with the economic growth seen by various economies in Q3 2020. The GDP contraction halved in Q3 2020 compared to Q2 2020 for select 18 economies," stated the report.
According to it, the upward revisions reflected faster recovery and the estimates could be better if July and August showed a little bit of traction. The SBI business activity index showed continuous improvement and expected Q3 numbers to be even better. "However, the extent of recovery in subsequent quarters could only be gauged after the actual Q2 numbers were published," the report stated.
The Ecowrap report said there was no doubt that the country's economy had suffered and the scarring still remained. The Micro, Small and Medium Enterprises (MSME) sector borne the brunt of the COVID-19 pandemic and the Export Promotion Capital Goods (ECLGS) scheme was a shot in the arm.
The report also highlighted that corporate results remained good and growth in corporate GVA of 3,640 listed entities was at 22.06 per cent year on year (y-o-y) for Q2 FY21 and size-wise analysis based on turnover showed resilience in small and medium enterprises.
The SBI Ecowrap reiterated that despite the reduction in losses, one should remain cautious in the present scenario. "Although the GST numbers provide cheer as in October 2020, it showed 10 per cent y-o-y growth and is expected to be healthy, the true picture will emerge when GDP data comes," the report added.
It further said future prognosis depended on two things - the shape of the recovery from COVID-19 infections and how fast the vaccine was rolled out.
"The current trends of COVID-19 infection show the cases in India peaked in September. With Unlock 5.0 and festival season till December end, the chances of possible second wave will increase. With domestic vaccine entering Phase III and one more phase to go, COVID-19 recovery will be contingent on how fast the vaccine is rolled out and consumer confidence is restored. The best estimate of full recovery in consumer confidence can be placed in Q3," the report concluded.
