Monetary, credit conditions conducive for durable economic recovery: RBI

The report did take note of rising cost pressures across segments.

Overall monetary and credit conditions in India remain conducive for a durable economic recovery, the Reserve Bank of India (RBI) has said in its ‘State of the Economy’ report, part of the November bulletin.

While recovery has gained strength, the speed and pace of improvement remains uneven across different sectors of the economy, the report said.

The central bank said the Indian economy is differentiating itself from the global situation, which is marred by supply disruptions, stubborn inflation and surges of infections in various parts of the world. It referred to improving mobility indicators, a pick-up in the job market, reduced infections and faster vaccinations as markers of strength.

“The global economic outlook remains clouded by uncertainty with headwinds from multiple fronts at a time when many economies are still struggling with nascent recoveries. There is a risk of faster policy normalisation by major central banks leading to tightening of financial conditions and stifling of growth impulses,” the report said, adding that domestic conditions are poised better. “Overall monetary and credit conditions stay conducive for a durable economic recovery to take root,” it said.

Indicators of aggregate demand posit a brighter near-term outlook than before. On the supply side, the rabi season has set in early on a positive note on the back of a record kharif harvest, and manufacturing is showing improvement in overall operating conditions, while services are in strong expansion mode.

The report did take note of rising cost pressures across segments. Input costs pressures, as reflected in the purchasing managers’ index (PMIs), increased across manufacturing and services in October, with cost conditions turning more adverse in manufacturing. The number of services firms that increased selling prices rose in October.

Consumer prices rose, too. The food price index rose for the third consecutive month in October, marking its highest level since July 2011, primarily led by scaling vegetable oil and cereal prices. Edible oils inflation, in spite of some moderation, remained elevated. Among key vegetables, prices of tomatoes and onions have seen sharp increases in November so far, with tomato prices inching up higher than levels a year ago, the report said.

Demand conditions also exhibited strength, with record imports of electronic goods for the second consecutive month in October, driven by ongoing mega sales organised by major e-commerce companies during the festive season.

The purchase of coal, coke and briquettes has increased significantly from pre-Covid levels, given the low level of domestic coal-stock positions. “The non-oil non-gold imports exhibited a resounding growth for the fifth consecutive month,” the report said.

The comfortable revenue position of the government has enabled it to incur higher expenditure, the report said. Capital and revenue expenditure accelerated by 38.3% and 6.3% over 2020-21, respectively. The growth in capital expenditure was led by the ministry of road transport and highways, which has exhausted 68.2% of its budgeted capital expenditure for FY22. The report attributed the Centre’s decision to reduce the excise duty on fuel to the “upbeat fiscal scenario”.