GDP growth may enter positive zone in third quarter of FY 2020-21: RBI

NEW DELHI: The Indian economy seems to be getting back into gear and sliding into a faster lane. On Wednesday, the Reserve Bank of India (RBI) in a bulletin estimated that GDP growth may enter positive territory by the third quarter of the current financial year if the current momentum is sustained. 

Just a month ago, skeptical members of Monetary Policy Committee (MPC) had forecast 5.6 per cent contraction in the December quarter. According to the central bank, incoming data for the month of October indicates that prospects have brightened for the economy and that this has stirred up consumer and business confidence.

With the momentum of September having been sustained, it noted, there is now optimism that the revival of economic activity is "stronger than the mere satiation of pent-up demand released by unlocks and the rebuilding of inventories".

"If this upturn is sustained in the ensuing two months, there is a strong likelihood that the economy will break out of contraction of the six months gone by and return to positive growth in Q3, 2020-21," the RBI said.

There are, however, formidable downside risks that confront the country. Listing the challenges, the RBI noted that foremost problem is the unrelenting pressure of inflation, which shows no signs of  waning in spite of supply management measures. 

There is also the grave risk of a generalisation of price pressures, it added, pointing out that the unanchoring of inflation expectations could feed into a loss of credibility in policy interventions. The second major risk is the danger that a second wave of infections could pose to the global economy.