India: Weaker economic activity will translate to lower nominal GDP of 4.1% – ANZ

Economists at ANZ Bank are revising Indian FY21 (fiscal year ending March 2021) GDP forecast to a multi-decade low of 1.6%. USD/INR is trading at 76.7945.

Key quotes

“Our nominal GDP and price deflator assumptions round off our real GDP forecast to 1.6% for FY21 (ending March 2021), a multi-decade low. The bulk of the weakness will come in Q1 FY21 (we estimate a decline of 0.9% y/y). The next two quarters will see flat to very marginal growth, with Q4 FY21 helping to lift the annual number.”

“Overall, given our assessment that growth will recover in a piecemeal way through FY21, our nominal GDP forecast for the full year stands at 4.1%.”

“A reduction in nominal GDP to 4.1% increases the budget deficit to 3.8% of GDP, from the 3.5% budgeted. The recently announced relief package, adds a further 0.9% of GDP, stretching the headline to 4.7% of GDP. Incorporating the loss to gross and net revenues, we estimate the fiscal deficit to shoot up to 5.5% of GDP.”

“We estimate FY22 GDP growth to rise to 5.5%, but this is contingent on a harder fiscal stimulus. Growth can be weaker in its absence.”