Updated: October 9, 2020 7:40:01 pm
Reserve Bank of India (RBI) Governor Shaktikanta Das addresses via live broadcast as he announces the central bank’s monetary policy decisions, in Mumbai on Friday. (PTI)
Disclosing the bi-monthly monetary policy, the Reserve Bank of India’s Monetary Policy Committee (MPC) said on Friday that a faster and stronger rebound in the economy is “eminently feasible” if the current recovery momentum gains ground. MPC, which kept key policy interest rates unchanged, said that real GDP is likely to grow 20.6 percent in the first quarter of 2021-22.
GDP reactivation: Projecting negative (-) real GDP growth of 9.5 percent in 2020-21, RBI Governor Shaktikanta Das said: “The deep contraction in the June 2020-21 quarter is behind us; the silver lights are visible in the flattening of the active case load curve across the country. “The policy panel said real GDP growth in 2020-21 is expected to be negative at (-) 9.8 % in the second quarter of 2020-21, (-) 5.6% in the third quarter and 0.5% in the fourth quarter. “Real GDP growth for the first quarter of 2021-22 is at 20.6 percent, ”the panel said. According to Das, the MPC has decided to view the current inflation hump as transitory and address the most urgent need to reactivate growth and mitigate the impact of Covid. GDP had declined by 23, 9 percent in the June quarter.
Inflation to go down: RBI projections indicate that inflation would be closer to target for the fourth quarter of 2020-21. In the September 2020 round of the RBI survey, households expect inflation to decline modestly over the next three months, indicating hope that supply chains are recovering. Retail inflation is projected at 6.8 percent for the second quarter of 2020-21, 5.4-4.5 percent for the first six months of 2020-21 and 4.3 percent for the first quarter of 2021-22, the RBI said. The MPC’s assessment is that inflation will remain high in the September printout, but will gradually ease toward target during the third and fourth quarters. Our analysis suggests that supply disruptions and associated margins / surcharges are the main factors driving inflation. As supply chains are reestablished, these gaps should dissipate, he said.
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About recovery: Das said the economy is likely to witness a three-speed recovery with individual sectors showing variable rates, depending on the specific realities of the sector. The sectors that would ‘open their accounts’ as soon as possible are expected to be those that have shown resilience in the face of the pandemic and are also labor intensive. Agriculture and related activities; fast moving consumer goods; two-wheelers, passenger cars and tractors; drugs and pharmaceuticals; and electricity generation, especially renewables, are some of the sectors in this category. The second category of sectors in ‘strike form’ would comprise sectors in which activity gradually normalizes. The third category of sectors would include those facing ‘slog overs’, but can salvage entries.
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About the economy: The Indian economy is entering a decisive phase in the fight against the pandemic. Relative to pre-Covid levels, several high-frequency indicators point to moderation in contractions in various sectors of the economy and the emergence of growth impulses. “Covid-19 has severely tested and stretched our resources and our resilience. Our tribulations are not over yet and a further increase in infections remains a serious risk, ”said Das.
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