SBI pegs FY21 growth at 2.6%, says govt must monetise deficit

MUMBAI: State Bank of India (SBI) house economists have pegged the growth forecast for January-March at 2.5 per cent and for 2020-21 at 2.6 per cent given the massive disruptions to businesses and the economy due to the COVID-19-driven lockdowns, which has upended at least 70 per cent of the economy.
The nation is on three-week lockdown ending April 14, which many now feel will have to be extended as more and more coronavirus infections are getting reported from across the country.
The pandemic has taken the lives of 109 people and infected 4,069 as of Monday in the country, while globally it has killed tens of thousands and infected over a million, mostly in the US.
The 21-day lockdown will cost the economy at least Rs 8 lakh crore, according to a report by SBI Research, which says at least 70 per cent of the economy is on a standstill because of this.
The estimate shows that over a 60-year period, global GDP (gross domestic product) has declined only once annually in 2009 by 1.7 per cent. But many analysts have pegged the global contraction at over 1.9 per cent but some independent estimates suggest a contraction of as much as 4 per cent to the global economy.
The country’s share in global GDP currently is 3.5 per cent.
We estimate another 1.7 per cent impact on real GDP because of the 21-day lockdown in FY21 resulting in at least 70 per cent of the economy at a standstill.
We peg FY21 GDP estimate at 2.6 per cent, with a clear downward bias, with Q1 of FY21 GDP numbers witnessing a contraction. FY20 GDP estimates could also see a downward revision from 5 per cent to 4.5 per cent with Q4 growth at 2.5 per cent, SBI Research said in a note, adding pegged the total cost of the 21-lockdown at Rs 8.2 lakh crore in nominal terms and output loss at 4 per cent on a conservative approach.
But they are quick to add that the economy could rebound if a stronger stimulus is offered.
Meanwhile, amidst talks of a second stimulus package being announced by the government to help individuals, businesses and the economy find their feet to tide over the massive disruptions, the report said the Reserve Bank should monetise the deficit, which is set to overshoot by at least 400 bps.
Given the low market appetite for borrowing, it is imperative that government uses the clause given in FRBM Act and monetise the deficit with the RBI subscribing to the primary issues of the Central government debt and fulfill the supply-demand gap in FY21, the report said.
In FY2020, total borrowing by the Centre and states stood at Rs 13.5 lakh crore, the Centre at Rs 7.1 lakh crore and the states combined Rs 6.4 lakh crore.
Given at least estimated 4 per cent slippage in GDP/Rs 8 lakh crore, we expect the Centre and the states could borrow conservatively close to Rs 20 lakh crore in FY21. Thus, it is a must that RBI monetises the deficit, using the national calamity clause given the stressed market absorption capacity, it says, adding this will add up to 2.5-3 per cent of GDP and the government must show it separately as an off-balance sheet item in the budget like a ‘COVID bond’.

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