Economy down but not out, vax strategy to shape recovery, says RBI

NEW DELHI:  Even as the country continues to wrestle with the second wave of the pandemic, the Reserve Bank of India (RBI) has raised “cautious optimism” about the state of the economy. The central bank, in its latest monthly bulletin, has assessed that the second wave has hit domestic demand hard. “On the brighter side, several aspects of aggregate supply conditions – agriculture and contactless services are holding up, while industrial production and exports have surged compared to last year amidst pandemic protocols,” the RBI bulletin said. 

Noting that the pandemic is a real shock with real consequences, the central bank believes there is a need to ensure that the recovery is built on a solid foundation of investment and productivity growth. “Life- and work-style transformation such as increased remote work and online shopping may likely endure. When patterns of demand shift, some firms may face closure,” according to the RBI bulletin. While some industries may become permanently smaller, at the same time, existing firms in industries experiencing increased demand may expand and new ones will emerge. 

The bulletin further added that three sectors with the greatest growth potential in the post-recovery decade include: digital   technologies; biomedical science (along with its applications in healthcare); and technologies that address various challenges to sustainability, especially those pertaining to climate change.

On inflation, RBI said it sees price instability as transitory, even as markets are convinced that inflation is rising into the long-term and will force the hand of monetary authorities to abandon ultra-accommodation. Accommodative monetary policy is when central banks expand the money supply to boost the economy. “Going forward, the speed and scale of vaccination will shape the path of recovery,” RBI added.