Second wave not as harsh on Indian economy as the first: RBI

The Reserve Bank of India (RBI), in its annual report, presented a mixed bag on its outlook towards the Indian economy. On a positive note, it said that the effect of the second wave of Covid-19 on the Indian economy has not been as harsh as the first wave. However, it warned of uncertainties which can create problems in the short term.

In its report, RBI called the pace of the second wave of Covid-19 as ‘alarming’, which has put pressure on the capacity of healthcare infrastructure in the country.

According to the central bank, the recovery of the economy from Covid-19 will depend on the revival of private demand. While consumption may drive up demand in the short run, an increased pace of investments will be required to sustain the recovery. It highlighted that reforms implemented in various sectors will ultimately improve India’s growth potential in a  sustainable manner.

The arrival of the virus’s second wave has led to various rating agencies revising India’s growth estimates, “with the consensus gravitating towards Reserve Bank’s projection of 10.5 per cent for the year 2021-22, 26.2 per cent in Q1, 8.3 per cent in Q2, 5.4 per cent in Q3 and 6.2 per cent in Q4,” said the report. However, it added that the pandemic has emerged as the biggest risk to its projections.

The banking regulator credited “Capex push by the government, rising capacity utilization and the turnaround in capital goods imports ” as upsides for the economy. It also said that a global effort against the pandemic will lead to better outcomes as opposed to each country fighting its own battle.

Talking of the monetary policy in this financial year, the report said that the policy will be guided by the evolving macroeconomic conditions. While the monetary policy will favor growth, it will ensure that inflation remains under control.

According to the Reserve Bank, the fact that GST collections in April were more than Rs 1 lakh crore for the seventh continuous month suggests that the production in the manufacturing and services sector has been maintained. Other high-frequency indicators show a mixed picture, it added.

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