State Bank Of India (SBI) economists, in the latest edition of Ecowrap noted that they are revisiting its GDP growth estimation for Q1 FY21 from at lower than -20% and now peg it at much lower contraction: -16.5%, though with the relevant caveats in the current uncertain scenario. Specifically, degrowth in Corporate GVA is significantly better than revenue degrowth in Q1FY21 as far as the results of the listed companies are concerned. In principle, revenue decline of listed companies has been far outstripped by cost rationalization thereby not impacting margins. The Composite Leading Indicator and Monthly Acceleration Tracker also support the same.
However, rural recovery is unlikely to support such pace in subsequent quarters as overall, the per capita monthly expenditure in urban areas is at least 1.8x 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.
The update further noted that over the months of July and August the virus has now significantly penetrated the rural areas. The percentage of cases in rural districts to total new cases has risen to 54% 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 penetration in rural areas. These districts contribute mostly around 2-4% of GSDP of their respective States, indicating that cases are penetrating deep rural hinterlands. An analysis of positivity rate and test per million indicates that in the states like Maharashtra, Gujarat, Telangana, Bihar and West Bengal the positivity rate is significantly high but tests per million are quite less.
This indicates that in these states the peak has not yet come and the situation will remain grave till the time number of tests increase significantly. The report stated that using the bottom-up approach, it is estimated total Gross State Domestic Product or GSDP loss due to COVID-19 is at 16.8% of GSDP. State-wise analysis indicates that top 10 states accounted for 73.8% of total GDP loss with Maharashtra contributing 14.2% of total loss followed by Tamil Nadu (9.2%) and Uttar Pradesh (8.2%). Subsequently, the per capita loss for all India is around Rs 27,000 with states like Tamil Nadu, Gujarat, Telangana, Delhi, Haryana, Goa, etc. exhibiting loss of more than Rs 40,000 per person in FY21.
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