India#39;s GDP to contract 1% in December quarter, says BofA


Against the majority view of a rebound in the growth numbers for the December quarter, the house economists at the Wall Street brokerage Bank of America Securities on Tuesday pencilled in a 1 percent contraction in India’s GDP for the third quarter.

On an average, economists at almost all the rating agencies and brokerages have forecast 0.4-0.7 percent positive growth for the economy that has contracted a record high 23.9 percent in the first quarter and 7.5 percent in the second quarter of the current fiscal.

The contraction in the first half of the current financial year ending March 31, 2021 is 15.7 percent.

Expecting a rebound in the second half, Bank of America Securities India has pencilled in a contraction of only 7-7.7 percent for the year, still making it the worst on record and the third since Independence.

BofA’s negative 1 percent GDP growth assessment comes despite its activity indicator recording a 1.7 percent growth in December after declining for nine months on the trot.

In a report, BofA Securities India said it sees GDP contracting by 1 percent in the December quarter,

The BofA India activity indicator rose by 1.7 percent in December after reporting (-) 0.6 percent and (-) 0.8 percent in November and October, respectively. The December quarter print was at 0.1 percent growth but recovering from (-) 4.5 percent in the September quarter and (-) 20.7 percent in the June quarter.

“This supports our call of GVA contractions of 1 percent in the December quarter and (-) 6.7 percent in FY21,” it said.

As per the report, credit growth slipped to 5.6 percent in late January from 6.2 percent on January 1. This shows that the economy remains weak and the only relief is that the real lending rates are coming off with the real MCLR falling by 230 basis points since March 2019 on sustained RBI easing, it added.

The economy is limping back from the pandemic shock. The good news is that the India activity indicator has finally risen by 1.7 percent in December after declining for nine months continuously, it said.

Looking ahead, the brokerage expects the RBI to conduct OMOs (Open Market Operations) and LTROs (Long Term Repo Operations) worth USD 39 billion in FY22 to fund the high fiscal deficit at reasonable yields to nurse the recovery.

On balance, the report said that it expects the RBI to remain on hold throughout FY22 and hike rates by 100 basis points in FY23.