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India’s Debt to Skyrocket while GDP to contract by 16.5 % in Q1 FY21

India's GDP Shrank by 23.9%

A new report of State Bank of India expects India’s GDP to contract by 16.5% in the first quarter of the current fiscal year. This, however, is lower than the estimated contraction of 20% that was estimated in the May report of the bank.

The report also found a lot to cheer about in the quarterly results published by several listed companies.

“It is interesting to mention that the decline in corporate GVA (gross value added) is only 14.1 %. In principle, revenue decline of listed companies has been far outstripped by cost rationalisation thereby not impacting margins,” the report said.

It further said over the months of July and August, coronavirus has now significantly penetrated the rural areas. The percentage of cases in rural districts to total new cases has risen to 54 per cent in August.

“These districts contribute mostly around 2-4 per cent of GSDP (gross state domestic product) of their respective states, indicating that cases are penetrating deep rural hinterlands,” the report noted.

The report estimates total (GSDP) loss due to COVID-19 to be at 16.8 per cent of GSDP.

In last month’s report, State Bank of India estimated India’s Debt to GDP ratio to climb to 87.6% this fiscal, up from 72.2% last year due to collapsing GDP and consequently higher borrowings.

Contracting GDP along with the increasing need for more fiscal stimulus is already putting huge pressure on the finances of the Modi government. With higher borrowing expect inflationary pressure on the Indian economy and decrease in the purchasing power of the Indian Rupee.

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