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SBI Ecowrap revises FY21 growth forecast to -7%

It earlier forecast a GDP contraction of -7.4%; Report says Q3GDP will be in positive zone

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Mumbai: SBI's research wing, Ecowrap has revised its FY21 GDP forecast estimate for the current fiscal to -7 per cent from -7.4 per cent earlier.

Based on 'SBI Nowcasting Model', the forecasted GDP growth for Q3 would be around 0.3 per cent (with upward bias), said the report by Ecowrap which is headed by SBI's group chief economic advisor Soumya Kanti Ghosh.

Additionally, out of the 41 high frequency leading indicators, 51 per cent are showing acceleration.

"We now expect GDP decline for the full year to be around 7.0 per cent (compared to its earlier prediction of –7.4 per cent)," the report said.

Apart from Q3 FY21, the Q4 growth will also be in positive territory (about 2.5 per cent). However, all projections are conditional on the absence of any rise in infections.

The report goes on to say, "We retain our GDP forecast for FY22 GDP at 11 per cent, but with the caveat that 11 per cent will be the floor below which it cannot fall."

The corporate results so far also reinstate the fact that Q3 growth would be much better than the Q2 growth. The corporate GVA of 1129 companies has expanded by 14.7 per cent in Q3 as compared to 8.6 per cent growth in Q2 (of 3758 companies ex telecom).

Meanwhile, the proposed ARC AMC structure in the budget could facilitate recovery and resolution of stressed assets in a much better way and this could create a market for stressed assets. Given that the governance of the AMC and its independence is central to the success, there could be multiple suggestions to make it successful. This include keeping majority ownership in the private sector, putting together a strong and independent board, hiring a professional team from the market and linking AMC compensation to returns delivered to investors.

Meanwhile, the report pointed out that fiscal deficit is likely to be higher for FY21 than 9.5 per cent projected in the Budget. "We already estimated that excluding off balance sheet liabilities, fiscal deficit of the Centre is likely to be at 8.7 per cent of GDP", the report said.

Gross tax collection estimate based on revised FY21 numbers and collections till FY21 December end showed that in Q4 tax collections will show a negative QoQ growth of -8.9 per cent. This seems unrealistic and thus we believe that this year ultimate gross tax collections would possibly be on the other side. Furthermore, next year nominal GDP growth is expected in double digits.

Kumud Das
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