Economy

ET Poll: FY21 GDP growth may have got a Q4 booster shot

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The Indian economy performed better than expected in the March quarter, according to an ET poll of economists, implying that FY21 contraction is likely to be less than the 8% estimated earlier.

The median estimated growth in the ET poll is 1.2% for the quarter in a (-)1.1 to 3.5% range. Full FY21 gross domestic product (GDP) is expected to contract by a median 7.5%.

In its second advance estimate of national income released in February, the National Statistics Office (NSO) had forecast an 8% contraction. Based on the data for the April-December period, that implied a 1.1% decline in the March quarter.

The Reserve Bank of India (RBI) had forecast a 7.5% contraction in FY21. The official March quarter and provisional FY21 GDP numbers will be released on Monday, May 31.

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“We peg the GDP growth for the just-concluded quarter at 2%, suggesting that the double-dip recession implied for Q4 FY2021 by the NSO’s second advance estimates for FY2021, was averted,” said Aditi Nayar, chief economist at ICRA. GDP grew 0.4% in the December quarter.

Most high-speed indicators gained strength in the March quarter as the first Covid wave waned and the economy picked up pace before the second one took hold, denting estimates for FY22.

“GST (goods and services tax) collections, auto sales, electricity and construction performed well in the fourth quarter along with higher year-end government capex, suggesting that the recovery had picked up pace,” said Sakshi Gupta, economist at HDFC Bank.

Additionally, the incremental opening up of the economy saw a faster-than-expected recovery in the services sector while consumer goods got a boost from pent-up demand, said Madan Sabnavis, chief economist at CARE Ratings. The rating agency pegged fourth-quarter growth at 1.2% with a 7.5% contraction for the previous fiscal.

The catastrophic second wave has taken the sheen off the recovery in the March quarter, but Anubhuti Sahay, head of South Asia economic research at Standard Chartered Bank, said it’s a pointer to economic performance once India goes past this.

“The March data is important because it gives us a very good indication on how the economy is likely to behave once the second wave settles down and hopefully a sizable proportion of the population is vaccinated,” Sahay said, estimating final-quarter growth at 1.5% along with a 7.3% contraction in FY21. March saw robust improvements aided by strong external sector growth and a favourable base effect, said Bornali Bhandari, senior fellow at the National Council of Applied Economic Research (NCAER).

The think tank estimated March quarter growth at 2% and a 7.3% contraction for the last fiscal.

GST collection in April (for the month of March) hit a record Rs 1.41 lakh crore, marking the seventh straight month of collections exceeding Rs 1 lakh crore. Power consumption grew 22.8% in March while industrial output grew 22%, albeit on a low base.

Manufacturing sector performance was largely enabled by cost-cutting exercises rather than top-line growth, said Indranil Pan, chief economist at Yes Bank, adding that informal sector stress was unlikely to show in the GDP figures.

Yes Bank’s estimates were in line with the NSO’s at -1.1% for the last quarter and an 8% contraction in FY21. A significant revision in the quarterly figures will mean a downward bias on projections for FY22, said DK Pant, chief economist at India Ratings and Research, adding that it was important to watch for any amendment in the October-December figure.

The agency expects fourth-quarter growth at 0.6% while it estimated FY21 contraction at 7.5%.

Growth estimates for past quarters are “likely to undergo sharp revisions” due to the impact of the pandemic on data collection mechanisms, the Central Statistics Office had said earlier.

Additionally, GDP figures could be hit by the substantial one-time adjustment in food subsidy repayment of Rs 4.22 lakh crore as per the revised estimates for FY21 as laid out in the February budget.

“Hinging on when this is fully reflected in the national accounts, this treatment could sway our March 2021 quarter and FY22 assumptions,” said Radhika Rao, economist at DBS Bank.

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