Economy Likely To Contract 10.9% In 2020-21, Says SBI Report

Economy Likely To Contract 10.9% In 2020-21, Says SBI Report

SBI expects real GDP to decline 12-15 per cent in the second quarter (July-September)

The country's real gross domestic product (GDP) is now estimated to contract 10.9 per cent in financial year 2020-21, State Bank of India (SBI) said in a report on Thursday. The annual GDP contraction was estimated at 6.8 per cent previously, the country's largest lender said in its Ecowrap report. The downward revision in the annual forecast for the economy comes days after official data showed the country's GDP contracted 23.9 per cent in the quarter ended June 30, in its worst performance on record, due to the nationwide lockdown imposed by the central government on March 25 to curb the spread of Covid19.

Industry was worst affected in Q1 FY21, with a decline of 38.1 per cent during the period, compared to a growth of 4.2 per cent in Q1FY20, the report pointed out. The services sector saw a decline of 20.6 per cent in Q1FY21 during the period.

According to the report, agriculture provided the only silver lining. The sector grew by 3.4 per cent during the first quarter as the government had provided leeway to the farmers to undertake cultivation activities. Moreover, the pandemic had not made much inroads into the rural sector. However, the second quarter could be different as the covid19 has spread its tentacles into rural India.

SBI expects the real GDP to decline in the range of 12-15 per cent in the second quarter (July-September), and 5-10 per cent in the following quarter (October-December), according to the report.

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The report, however, highlighted some positives. The credit increased to all major sectors in the month of July, with the exception of the industrial sector. There was a significant increase in credit to the MSE, agri and allied services sectors. And new projects were announced in roadways, basic chemicals, electricity and community services such as hospitals and water sewage pipelines.

The report by SBI bats for revival of sectors such as construction, trade, hotels and aviation. It also calls for  restoration of transportation services and giving a push for the infra space by issuing special bonds such as perpetual bonds to RBI. It also suggests that states should be supported through fiscal measures.