The Reserve Bank of India (RBI) predicts real GDP to contract to 7.5% in FY21, however, the performance will turn positive by the second half of this fiscal. Notably, substantial growth is expected in the first half of the financial year FY22.
In the monetary policy statement, RBI today said, "Turning to the growth outlook, the recovery in rural demand is expected to strengthen further, while urban demand is also gaining momentum as unlocking spurs activity and employment, especially of labour displaced by COVID-19. These positive impulses are, however, clouded by a possible rise in infections in some parts of the country, prompting some local containment measures."
Also, on the positive front, RBI said, "At the same time, the recovery rate has crossed 94 per cent and there is considerable optimism on successes in vaccine trials. Consumers remain optimistic about the outlook, and business sentiment of manufacturing firms is gradually improving. Fiscal stimulus is increasingly moving beyond being supportive of consumption and liquidity to supporting growth-generating investment."
However, RBI also points out that the private investment is still slack and capacity utilisation has not fully recovered. While exports are on an uneven recovery, the prospects have brightened with the progress on the vaccines. Demand for contact-intensive services is likely to remain subdued for some time due to social distancing norms and risk aversion.
Thereby, RBI projects real GDP growth at (-)7.5 per cent in 2020-21: (+)0.1 per cent in Q3:2020-21 and (+)0.7 per cent in Q4:2020-21; and (+)21.9 per cent to (+)6.5 per cent in H1:2021-22, with risks broadly balanced.
RBI governor Shaktikanta Das in his statement said that the MPC decided today to maintain status quo on the policy rate and continue with the accommodative stance as long as necessary – at least during the current financial year and into the next financial year – to revive growth on a durable basis and mitigate the impact of COVID-19 on the economy while ensuing that inflation remains within the target going forward.
India's Gross Domestic Product (GDP) stood at a contraction of 7.5% in Q2FY21 against the growth of 4.4% in Q2FY20. In the June 2020 quarter, the GDP contracted to 23.4%. In Q2FY21, quarterly GVA contracted to 7% to Rs30.49 lakh cr against Rs32.78 lakh cr a year ago same period.
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