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Mumbai, NFAPost: India’s GDP grew by 8.4% in Q2 FY22 (SBI estimate: 8.1%) on the back of double-digit growth in ‘Mining & Quarrying’ and ’Public Administration, Defence and Other Services’, states a report published by the State Bank of India’s Economic Research Department.

The report states that the real GVA increased by 8.5%, a tad higher than the GDP growth. Nominal GDP growth jumped by 17.5%, driven in part by a GDP deflator at 8.4%,” finds the report.

For Q2, seasonally adjusted real GDP growth is 6.6% q-o-q compared to 10.36% q-o-q non-adjusted real GDP growth. Core GVA, a proxy of private sector growth expanded by 7.5%, the highest since Q1FY19.

State Bank of India Group Chief Economic Adviser Dr. Soumya Kanti Ghosh, who is also the author of the report, states that in H1 FY21, the country exhibited real GDP loss of Rs 11.4 lakh crore (on y-o-y basis) due to complete lockdown in Apr-May and partial lockdown in Jun-Sep.

“The situation has improved in FY22 and in H1 FY22 the real gain was around Rs 8.2 lakh crore. This indicates that real loss of Rs 3.2 lakh crore still needs to be recouped to reach the pre-pandemic level,” said State Bank of India Group Chief Economic Adviser Dr. Soumya Kanti Ghosh.

Sector-wise data indicates that ‘Trade, Hotels, Transport, Communication & Services related to Broadcasting’ are still the most affected sectors and the real loss of Rs 2.6 lakh crore is still needed to be recouped in this sector. Overall, economy is still operating at 95.6% of pre-pandemic level (with ‘Trade, Hotels, Transport, Communication & Services related to Broadcasting’ still at 80%) and should take one more quarter to recoup the losses.

In Q2FY22, FMCG sector reported a top line yoy growth of 11% while EBIDTA and PAT grew by 4% each. However, rural markets, which have shown good resilience thus far during the pandemic have slowed in the last couple of months as suggested by some of the industry majors. However, the results of industry majors whose Q2 FY22 results have been declared (like Dabur) have still not shown a significant slowdown in the rural economy.

State Bank of India Group Chief Economic Adviser Dr. Soumya Kanti Ghosh said the Q2 estimate of the GDP on the expenditure side largely retains the flavour of trends observed in Q1FY22.

“Foremost in quarterly trends the shares in real terms have decreased for Private Consumption, Government Consumption and Exports and have increased for Imports and Investments and Valuables,” said State Bank of India Group Chief Economic Adviser Dr. Soumya Kanti Ghosh.

The component which has also increased is the inventories which has surpassed the pre-COVID level of FY20. Thus, accounting for the growth in production and concomitant accumulation of inventory, demand side has not recovered even after opening of the economy. The massive jump in valuables which implies savings to the tune of 2% of the GDP have moved into precious metals given their inflation hedging property and postponement of marriage in FY21.

The good thing is that new investment announcements in current year looks encouraging with around Rs 8.6 lakh crore investment announcements made so far in last seven months of FY22 (around Rs 11 trillion reported in last year). With private sector contributing around 67% of this i.e. Rs 5.80 lakh crore, it seems private investment revival is on the horizon . Also, SBI Business Activity Index at 110.7 for the week ended 29th Nov’21 indicates further pick-up in economic momentum.

In terms of guidance for next quarter, during the fortnight ended 05 Nov’2021 (22-Oct to 05-Nov’2021), ASCB’s credit has increased at the highest pace of Rs 1.18 lakh crore ((7.1% YoY), which is 56% of the incremental credit of Rs 2.14 lakh crore during the FY.

The sectoral data for the month of October 2021 indicates a robust pickup in credit off-take in almost all major sectors of the economy. In October, overall credit has increased by Rs 89,500 crores, with maximum contribution from personal loans (Rs 37100 crores), followed by Services (Rs 32400 crores). Other personal loans, mostly to salaried people, has continued to grow at a robust pace.

The echoes of the fast-spreading latest virus strain, Omicron, declared a ‘variant of concern’ by an edgy WHO seem to have reignited the worst fears of multiple nations, more so in view of the increased chances of reinfection posed by its 30-plus strains, even while researchers are frantically upping the ante to confirm the seemingly enhanced levels of transmissibility and severity of infection against effectiveness of vaccine doses administered (Moderna’s warning today about the relatively subordinate efficacy of vaccine against new found variant adding to the uncertainty), and also the worrisome status of other vulnerable groups amidst vaccine distribution inequality.

We now expect GDP growth for FY22 to top 9.5%, the RBI forecast. We believe that the real GDP growth would now be higher than the RBI’s estimate of 9.5% , assuming the RBI growth numbers for Q3 and Q4 to be sacrosanct.

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