There is now more evidence to show that the Indian economy “is pulling out of COVID-19’s deep abyss and is reflating” at a pace that beats most predictions, RBI officials, including Deputy Governor Michael Patra, said in an article in the central bank’s monthly bulletin.
“Economic conditions continued to improve through November on the back of the uptick in agriculture and manufacturing. Financial conditions embodied in interest rates are perhaps at their easiest in decades,” said the article titled “State of the Economy”, adding that despite headwinds, efforts by all stakeholders could put India on a faster growth track.
However, they warned that notwithstanding the severe impact of COVID-19 on government finances, it was imperative for the Centre and States to continue with the countercyclical fiscal measures to sustain the momentum of the recovery. At a time when States have reduced spending on infrastructure and other projects, it said.
“Revenue expenditure measures undertaken to enhance social protections to the underprivileged and to address labour market dislocations might need to continue as the recovery is likely to be uneven across sectors.”
“Capital expenditure, which collapsed in the first half of this fiscal, will need to be scaled up as a priority. Public investment in healthcare, social housing, education and environmental protection is the need of the hour to build a more resilient and inclusive economy,” they stressed in the article.
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The article noted that views expressed were those of the authors and do not necessarily represent the views of the central bank.
Stating that two important forces — better handling of the pandemic and stimulus impact — were “conspiring to bless this turning of the page on the virus” the article said India was bending the COVID infection curve. Since mid-September, barring localised surges, infections were slanting downwards week after week, and the recovery rate was nudging 95%, they said.
Besides, a battery of vaccine candidates has successfully hit not only trial status but also suitability for transportation/trials/usage in India.
Further, the article said the fiscal stimulus would likely boost growth by close to 2% of GDP in 2020-21. “It is prudent to look beyond the volatility inherent in high frequency indicators,” it said.
The authors added that an analysis of 12-months ahead forward earnings reveals improvement in the outlook for a large number of companies. Sectors such as auto and capital goods that were severely impacted in lockdown are expecting a turnaround in forward earnings. Healthcare, information technology (IT) and fast moving consumer goods (FMCG) companies were sighting stronger earnings outlook, it said.