SBI lowers GDP estimates to 4.6 per cent in FY 20 from 5 per cent
The SBI on Tuesday lowered the economic growth forecast to 4.6 per cent from the earlier 5 per cent. "The FY20 GDP estimate as released by the CSO pegs the GDP growth rate at 5 per cent (we had revised our GDP projection to 5 per cent in November 19), a 11-year-low. Nominal GDP growth at 7.5 per cent is a 42-year-low. For FY20, the budgeted nominal GDP growth rate was 12 per cent which has now been revised downwards to 7.5 per cent. Based on this GDP revision, the impact on fiscal deficit is around 12 basis points for FY20," SBI Ecowrap said.
This estimate however has a shelf-life of only two months and is only used as an input for budget arithmetic, it added.
"The CSO will release the first revised estimate of FY17, FY18 and FY19 on January 31 and based on that, we believe that GDP and GVA for FY20 would be revised further downwards in 2nd advance estimate for FY20 on February 28 and on May 29. We are now revising our GDP projection for FY20 to 4.6 per cent based on current available trends. It is likely that the 40 bps downward revision could be spilt over February and May in equal proportion," it said.
Factors like Government expenditure are the key determinants for overall growth outlook for FY20 as variations in government spending have a spill over effect on other sectors. In Q2, government spending alone accounted for 40 per cent of the entire quarter's growth (1.9 per cent out of 4.5 per cent headline GDP growth), even as share in GDP was lower than 13 per cent, it said.
"However, this momentum is unlikely to persist given that the government has already announced its intention of cutting expenditure. The key to a quick recovery is consumption. The CSO estimates reveal an impending consumption recovery but we believe the quadruple balance sheet problem (Banks, Corporates, NBFCs and Households) is creating space for deleveraging that will delay a consumption pick up and also an investment pick up."
The current uptick in oil prices could create a slowdown in discretionary consumption too.
"Specifically, the IBC resolution has been prolonged and we understand as companies are admitted into liquidation, the employees on the rolls of the company are only cumulatively compensated till the resolution process is completed, while the contractual employees are downsized. This also results in reduced remittance flows as contractual employees could head back to place of origin. This could also act as a constraining factor on consumption growth and thus it is essential that we also find a quick resolution (average resolution time is of 324 days as on March 2019). We now believe that the RBI projection of a 5.9-6.3 per cent GDP for FY21 could be on the higher side. We could be now staring at a sub 6 per cent growth for 2 successive years!
