Home / Economy / India's GDP to grow at 18.5% in June quarter on low base: SBI report

India's gross domestic product (GDP) is expected to grow at 18.5 per cent in the June quarter due to low base effect, SBI said in its Ecowrap research report. This projection, however, is lower than the 21.4 per cent growth projected by Reserve Bank of India.

“Based on SBI Nowcasting model, the forecasted GDP growth for Q1 FY22 would be around 18.5 per cent (with upward bias). The GVA is estimated at 15 per cent," the report said.

The Nowcasting model includes 41 high frequency indicators associated with industry activity, service activity, and global economy. Based on this model, SBI expects India's GDP growth to stay in the range of 7.5 to 8 per cent in the September quarter, and 6 to 6.5 per cent in December quarter of the current calendar year and March quarter of the next year. The overall GDP growth is projected to be within 9 to 9.5 per cent, which is in line with RBI predictions, the SBI Ecowrap report showed.

SBI warned that a wide divergence is possible between GVA and GDP because of strong tax collections.

The lender said that the high GDP growth is mainly on account of low base effect which has resulted in double-digit growth, or near to double-digit growth, in real GDP in most countries. The average real GDP growth for 17 economies has improved from (–)0.1 per cent in March quarter to 12.2 per cent in June quarter. 

The report said that a corporate GVA, a sum of EBITDA and employee cost, is expected to clock substantial recovery during the first quarter of current fiscal. 

“Overall, the corporate GVA of 4069 companies registered a growth of 28.4 per cent in Q1 FY22. However, this is lower than growth in Q4FY22, thereby corroborating the lower GDP estimate than what was anticipated earlier," it added.

Corporate GVA in the March quarter of current calendar year stood at 63.2 per cent.

The report further said that the correlation between the year-on-year growth of Consumers Future Expectations Index and real GDP growth has sharply declined. The correlation, which was highly positive till Q4 FY21 at 0.76, has gone down to 0.66, if the RBI’s Q1 GDP growth projection is included.

“This indicates that there is clear-cut divergence between that the consumers expect and what the RBI thinks. One of the reasons may be huge base effect which also impacts statistics but not the expectations," it said.

RBI's bi-monthly Consumer Confidence Survey tracks perceptions and expectations on general economic situation, employment scenario, overall price situation and own income and spending through responses of 5,384 households in 13 major cities.

The SBI Ecowrap further noted that lower mobility leads to lower GDP and the higher mobility to higher GDP, but the response is asymmetric.

“With decline in mobility the economic activity declines and thus GDP growth, however with increase in mobility the GDP growth does not increase in the same proportion. The relationship between the two has become weaker as can be seen in Q1 FY22 when mobility has declined, however GDP growth is high and positive. But higher y-o-y growth is mainly on account of base effect," it said.

Meanwhile, business activity index based on ultra high frequency indicators show further increase in August this year, with the latest reading for the week ended August 16, 2021 at 103.3. RTO collection, electricity consumption along with the mobility indicators have revived in Q2 FY22, indicating positive momentum in economic activity going forward, the report said.

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