Research Houses Upgrade India's FY21 GDP Estimate Post Q2 Improvement

Brokerage and research houses have revised their estimates more favorably for the Indian economy this financial year 2021 (FY21) with many institutions now reporting single-digit contractions from previous estimates hovering near double-digit predictions.

The 7.5% decline in the second quarter of the ongoing FY follows a 23.9% contraction in the first one, plunging the economy in a first-of-its-kind technical recession. These contractions have been driven by the national lockdown imposed towards the end of March as a health measure to prevent the spread of the ongoing COVID-19 pandemic.

After the first-quarter decline in the economy was reported, most houses released estimates near or around double-digits. But these latest estimates released by the government have sobered the estimates released by these houses.

These steps also follow action taken by the Reserve Bank of India. On October 9, during its monetary policy announcement, the Governor Shaktikanta Das first estimated that the Indian economy would contract 9.5% this FY. But on December 4, in its latest monetary policy announcement, the RBI now estimates a 7.5% contraction - better than its previous estimate - on account on demand improvements, business sentiments, vaccine hopes and fiscal support. Capacity in the economy still not having fully recovered and private investment remaining lax still weigh on the estimate, according to Das.

Here's the estimates coming in from other research houses.

1. SBI Research

The research desk of the State Bank of India has raised its estimates regarding India's gross domestic product (GDP) this FY from (-) 10.9% to (-) 7.4%.

In it's latest 'Econwrap' publication released today, SBI's research desk has outlined that it has arrived at this estimate using a new 'nowcasting' model, which uses 41 high-frequency indicators from Q4 of 2012. Of these, 58% are showing improvement in Q3, and it has further estimated a 0.1% growth in Q3.

The estimates also go on to estimate that the Government of India's fiscal deficit for this year will be 8% of GDP, close to ₹15 lakh crores.

They also estimate that in FY22, growth would be 10-12%.

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2. CRISIL

Credit rating agency CRISIL has revised their estimate for the economy upward, from a 9% contraction to 7.7% contraction.

The revision is led by two factors according to their report: faster than expected economic recovery which continued into a festive season and a declining a COVID-19 caseload in India.

However, this would be threatened by the uncertainty around a second wave of COVID-19 cases, uncertainty regarding a vaccine and the roadblocks in global recovery due to a resurgence of cases elsewhere.

In FY22, CRISIL estimates that growth would be 10% due to a weaker base.

3. Fitch

Fitch ratings has improved its outlook on the Indian economy and it estimates that the decline it will witness this FY will be 9.4% instead of 10.5%, up 1.1 percentage points, which it mentions in its Global Economic Outlook that it released this month.

This is driven by optimism due to an imminent vaccine, for which India has placed an order for 1.6 billion doses, but worsening asset quality and fragility in the banking system still remain. Fitch mentions the third banking failure in 16 months - a reference to Lakshmi Vilas Bank going under moratorium after PMC Bank in September 2019 and Yes Bank early in March this year.

Fitch also touches on high Indian inflation, which according to their research has peaked. Inflation served as an inhibitor for the RBI in effecting broad monetary policy.

4. S&P Global Ratings

S&P Global Ratings has raised its expectation on the Indian economy, stating that India will contract at 7.7% instead of the earlier forecasted 9%.

Rising demand and falling infections are what is propelling them towards lifting their targets on India.

S&P also said that India is learning to live with the virus, even though the pandemic is far from defeated.

It's forecast for FY22 is 10% growth.

5. Other forecasts

Mid-November, Goldman Sachs improved its forecast for the Indian economy's contraction from a 14.8% decline to a 10.3% one. In an earlier story done by BOOM, Goldman Sachs was at the upper limit of all these houses. Nomura has also improved its forecast from -10.8% to -8.2% for the Indian economy.

To benchmark, the International Monetary Fund has predicted a 10.3% decline in the Indian economy as per the October edition of its World Economic Outlook. The World Bank estimates a 9.6% decline as per its latest South Asian Economic Forecast.

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