GDP decline for the full year to be around 7.0%

Based on “SBI Nowcasting Model” ,the forecasted GDP growth for Q3 would be around 0.3% (with upward bias). Additionally, out of the 41 high frequency leading indicators, 51% are showing acceleration. We now expect GDP decline for the full year to be around 7.0% (compared to our earlier prediction of –7.4%). Apart from Q3 FY21 the Q4 growth will also be in positive territory (~2.5%).

However, all projections are conditional on the absence of any rise in infections. We retain our GDP forecast  for FY22 GDP at 11%, but with the caveat that 11% will be the floor below which it cannot fall. The corporate results so far also reinstate the fact that Q3 growth would be much better than the Q2 growth.

The corporate GVA of 1129 companies has expanded by 14.7% in Q3 as compared to 8.6% growth in Q2 (of 3758 companies ex telecom).

Meanwhile, the proposed ARC AMC structure in the budget could facilitate recovery and resolution of stressed assets in a much better way and this could create a market for stressed assets. Given that the governance of the AMC and its independence is central to the success, there could be multiple suggestions to make it successful.

This includes keeping majority ownership in the private sector, putting together a strong and independent board, hiring a professional team from the market and linking AMC compensation to returns delivered to investors.

Meanwhile, we continue to hold that the 9.5% of fiscal deficit of Centre might be on the higher side. We already estimate that excluding off balance sheet liabilities, fiscal deficit of the Centre is at 8.7% of GDP. Gross tax collection estimate based on revised FY21 numbers  and collections till FY21 Dec end shows that in Q4 tax collections will show  a negative QoQ growth of -8.9%. This seems unrealistic and thus we believe that this year ultimate gross tax collections would possibly be on the other side. Furthermore, next year nominal GDP growth is expected at double digits it is expected that tax buoyancy will be higher than FY21 (FY22 tax buoyancy projected is lower than FY21), thereby suggesting that gross tax collections next year might also be higher than the Budgeted Rs 22.17 lakh crore, or 9.9% of GDP.

Meanwhile, the cash balances of the Centre has declined from the peak level of Rs 3.4 lakh crores to around Rs 2.3 lakh crores  on February 8. Given that 85-90% of such cash balances belonged to the states  that was invested with the Centre, it is possible that the States before the closing of accounts of FY21 wants to  spend the cash rather than preserving.

(The writer is Group Chief Economic Advisor, State Bank of India)