Real GDP Could Decline 5% In Second Quarter Of FY 2020-21

India's real GDP could decline as much as 5 per cent in the second quarter, Motilal Oswal Financial Services has said in its latest report.

"Our in-house Economic Activity Index (EAI) for India's real GVA (called EAI-GVA) contracted 5.6% YoY in Jul'20 (similar decrease was witnessed in Jun'20) - marking its fifth successive monthly decline. Farm activities, however, remained strong, while the non-farm sector dropped 7%. Decline in industrial activities was a tad slower, while it was marginally higher for the services sector," the report said.

According to it, the EAI-GDP index (our in-house measure of the official GDP) also contracted 5.9% YoY in Jul'20, worse than the 3.3% decline a month ago. Interestingly, while private consumption and total investments decline was slower (v/s the fall in Jun'20), muted growth in government consumption and sluggish decline in imports led to faster contraction in EAI-GDP in Jul'20. Excluding government spending, EAI-GDP contracted 8% YoY in Jul'20 (v/s the 6% decline in Jun'20).

"Overall, the recovery path seems to have flattened since Jun'20. Not only does our EAI suggest similar contraction in economic activities in Jul'20, but also few indicators available for Aug'20 indicate that the fall has continued almost unabated. Consequently, we expect another decline of 4-5% YoY in 2QFY21, before real GDP posts a modest growth in 3QFY21. An important factor to ponder over now is whether economic activity will start growing from Oct-Nov'20 and continue after the festive season. Since the COVID-19 pandemic is still not contained in the country and partial lockdowns are being reintroduced, the progress needs to be closely watched," Motilal Oswal Financial Services has said in its report.