SBI Research upgrades India GDP projection to 9.3-9.6% range for FY 22

The research arm of the country’s largest lender had earlier pegged India’s GDP growth at a range of 8.5%-9%. SBI Research’s revised projection is in line with Reserve Bank of India’s projection of 9.5% for FY 22.

“As per our Nowcasting Model, the forecasted GDP growth for Q2 FY22 would be 8.1%, with an upward bias. The full year (FY22) GDP growth is now revised upwards to 9.3%-9.6% from our earlier estimate of 8.5-9.0%. With this the real GDP will be around Rs 2.4 lakh crore more than the FY20 Real GDP of Rs 145.69 lakh crore,” the Soumya Kanti Ghosh, group chief economic adviser at SBI, said in a note Monday.

“Also at an annual rate of 9.3-9.6%, India’s real GDP growth would now be 1.5%-1.7% higher than the pre-pandemic level of FY20,” he said.

The model uses the dynamic factor model to estimate the common or representative or latent factor of all the 41 high frequency indicators from Q4 of FY13 to Q2 of FY22.

India remained unscathed in Q3 from the global situation, which is marred by supply disruptions, stubborn inflation and surges of infections during Q3 2021, the note said, noting the reasons behind its revised estimates.

The increase in Covid cases declined to 2.3% in November over September, and total Covid-19 active cases reached the lowest of 1.24 lakhs since June 2020. Further, vaccination coverage exceeds 1.15 billion mark with 81% of the eligible population receiving at least a single dose and 42% of the eligible population both doses.

Also, the economic activity has gained momentum and reached pre-Covid level, Ghosh said. “India’s projected 8.1% growth rate in Q2 (FY22) is the highest growth across all economies. The average GDP growth of 28 selected economies has decelerated to 4.5% in Q3 (2021) as against 12.1%,” he added.

Farm laws

Prime minister announced to repeal all the three agriculture laws and will complete the constitutional process in the upcoming winter session of Parliament. He also announced to form a committee to decide, among others, making the system of MSP more effective and transparent.

SBI Research suggested five key agricultural reforms that could act as enablers even without these bills.

Firstly, instead of MSP as a price guarantee, the government may ensure a quantity guarantee clause for a minimum period of five years that make its mandatory of procurement to production percentage of crops being currently procured being at least equal to last year percentage, with safeguards in exceptional events like droughts, floods etc.

“As India is a oligopsony market where there are large number of small and marginal farmers/ sellers while the buyers are either the government and/or private, the private buyers will always have an incentive to strike a deal separately as the market has many small farmers / sellers willing to sell their produce but unable to do because of lack of market outside APMC,” Ghosh said in the note.

In a second suggestion, he said that government could explore converting the Minimum Support Price to Floor Price of Auction on National Agriculture Market (eNAM).

“Third, efforts must also continue to strengthen APMC market infrastructure. Based on a government report, as per our estimates, the monetary loss for cereals is almost Rs 27,000 crore due to harvest and post-harvest losses. The losses for oilseeds and pulses are Rs 10,000 crore and Rs 5,000 crore, respectively,” he noted.

Fourth, establish a contract farming institution in India that will have the exclusive right to oversee price discovery, he further suggested.

Contract farming has been instrumental in many countries by providing growers access to supply chains with market and price stability, as well as technical assistance.

Fifth, ensuring a symmetric procurement across states.

“The procurement of cereals had continued to be asymmetric, with top paddy producing states like West Bengal (first) and Uttar Pradesh (second) witnessing very low procurement, even as states like Punjab and Haryana that are not largest producers witnessing much larger procurement,” he said.

Procurement of cereals in Punjab and Haryana were 83% of produce, while for some other states this was in single digits.