India's GDP to contract by 16.5% in 1st quarter: SBI

19 Aug '20

2 min read

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India’s gross domestic product (GDP) is likely to see its first contraction in many years as the COVID-19 pandemic continues to spread, according to a recent report by the State Bank of India, which said the GDP is expected to contract by 16.5 per cent during the first quarter of the current fiscal. SBI released its Ecowrap research report on August 17.

Rural recovery is unlikely to support the pace of growth in subsequent quarters as the per capita monthly expenditure in urban areas is at least 1.8 times that of rural areas and rural wage growth in real terms might still be negative, the report said.

"In principle, revenue decline of listed companies has been far outstripped by cost rationalisation, thereby not impacting margins," said the report, adding that coronavirus significantly penetrated the rural areas in July and August.

The percentage of cases in rural districts to total new cases has risen to 54 per cent in August. Also, the number of rural districts with less than 10 cases has reduced significantly. Andhra Pradesh and Maharashtra have been impacted more severely, with increasing coronavirus penetration in rural areas.

These districts contribute two to four per cent of the gross state domestic product (GSDP) of their respective states, indicating that cases are penetrating deep rural hinterlands, the report said.

"This indicates that rural recovery will not have much impact on GDP growth. Thus it is of utmost importance to unveil further steps to support growth," Soumya Kanti Ghosh, group chief economic adviser at SBI, said in the report.

The de-growth in corporate gross value added (better-than-expected results of some financial and non-financial companies) has been significantly better than revenue de-growth in the first quarter of this fiscal as far as the results of listed companies are concerned.

So far, around 1,000 listed entities have announced their results for the first quarter. The results indicate more than 25 per cent decline in revenues and more than 55 per cent decline in profits. However, the decline in corporate gross value added is only 14.1 per cent, the report said.

A state-wise analysis indicates that top 10 states accounted for 73.8 per cent of total GDP loss, with Maharashtra contributing 14.2 per cent of total loss followed by Tamil Nadu (9.2 per cent) and Uttar Pradesh (8.2 per cent).

Fibre2Fashion News Desk (DS)

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