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Economic Growth To Contract By 16.5% In Q1 As Coronavirus Spreads: SBI Report - Posted on: 18-08-2020

Corporate earnings indicate more than 25 per cent decline in revenues and more than 55 per cent decline in profits.

The country's economic growth is likely to see its first contraction in many years as the Coronavirus continues to spread, the country's largest lender - State Bank of India said in a report. "India's GDP is expected to contract by 16.5 per cent during the first quarter of current fiscal as the current Covid-19 pandemic is spreading at a much faster rate after the opening up of the economy," the SBI's research report Ecowrap said on Monday. The report added that the 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 of rural areas and rural wage growth in real terms might still be negative.

"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," said Soumya Kanti Ghosh, Group Chief Economic Adviser at SBI, in the report.

The degrowth in corporate gross value added (better than expected results of some financial and non-financial companies) has been significantly better than revenue degrowth in Q1 FY21 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.

"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 have 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, said the report.

The report estimates total GSDP loss due to Covid-19 to be at 16.8 per cent of GSDP. 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).

Though India took 65 days to reach the one lakh mark from 100 and another 59 days to reach the 10 lakh mark, the current doubling rate in India is around 22 days.

India's doubling rate is at par with countries like Argentina and the United States. The world average is 43 days. Apart from this, India also has the highest death per million rate among major Asian economies, said the report.