RBI says Indian economy recovering faster than expected
The Indian economy, which was dealt a heavy blow by the coronavirus pandemic, is recovering faster than expected and could also register a minor positive growth in the third quarter of the current fiscal year, the Reserve Bank of India (RBI) said. However, the top bank underlined that it was important to check inflation to ensure it doesn't adversely affect incipient growth impulses.
According to the State of the Economy report published in the December bulletin of RBI, the Indian economy is looking to overcome the impact of the pandemic. "Indian economy is pulling out of COVID-19's deep abyss and is reflating at a pace that beats most predictions," the report said, adding that concrete efforts by all stakeholders can put India on a "faster growth trajectory."
"Contractions forecast by various agencies for the year as a whole are being trimmed, and if the current momentum is maintained, the bounce back expected in the last quarter of the year may be stronger than postulated under baseline assumptions," added the report.
RBI also provided an update about different sectors. It was revealed that at $23.5 billion, total merchandise exports dipped by 8.7% year-on-year in November. Oil imports also declined by 43.4% last month, said RBI, explaining that it was driven by soft international crude prices. But on the brighter side, non-oil exports maintained pre-COVID-19 levels for the third consecutive month.
RBI noted that the 12-month forward earnings estimate for a number of companies painted a heartening picture. In fact, sectors like auto and capital goods, which were hit the hardest by March's lockdown, are expecting turnarounds in forward earnings. The companies which are looking at a stronger earnings outlook belong to the healthcare, information technology (IT) and fast-moving consumer goods (FMCG) sectors, added RBI.
For now, RBI is focusing on the "worm in the apple" inflation, as it needs to be controlled before it starts hurting growth impulses. "A combination of rising international commodity prices and increasing pass-through to domestic manufactured goods and services prices, firms striving to recoup lost incomes by raising margins, and demand normalizing are adding to core inflation pressures," RBI added.
"Efficient, effective, and timely supply management, including checking runaway retailer margins and reducing the incidence of indirect taxes on consumers, can break the back of the inflation pressures before they incipiently broaden and work against the intent of fiscal and monetary stimuli," explained RBI.
RBI claimed the agriculture sector is also surging ahead, riding on the back of "path-breaking marketing reforms," an obvious hint toward the three farm laws that have sparked a massive protest. The liquidity conditions are comfortable, the report said, adding that banks returned Rs. 37,348 crore funds taken "under long-term repo operations (LTRO) and targeted long-term repo operations in favor of cheaper on-tap TLTRO."
Earlier, RBI Governor Shaktikanta Das made similar observations about India's recovery. "The horizon has lighted up with a spate of positive news around vaccines and a steady rise in recoveries. India's time has come to break free of the fetters of COVID-19 and reconfigure our destiny," Das said. RBI revised the real GDP growth for 2020-21 to -7.5%, after earlier pegging it at -9.5%