April 10, 2020 3:04:51 am
The Reserve Bank of India (RBI) has warned that the coronavirus (COVID-19) pandemic would impact economic activity in India directly due to lockdowns and through second round effects operating through global trade and growth.
“While efforts are being mounted on a war footing to arrest its spread, COVID-19 would impact economic activity in India directly through domestic lockdown,” the RBI said in its ‘Monetary Policy Report-April 2020’. Though it forecast retail inflation to decline to 2.4 per cent by the fourth quarter of 2020-21, the central bank refused to make any estimate on the GDP growth in the wake of “highly fluid circumstances”. Many global rating agencies and banks have downgraded India’s GDP growth to below two per cent.
“Second round effects would operate through a severe slowdown in global trade and growth. More immediately, spillovers are being transmitted through finance and confidence channels to domestic financial markets,” the RBI report said. These effects and their interactions would inevitably accentuate the growth slowdown, which started in Q1 of 2018-19 and continued through the first half of 2019-20, it added.
According to the RBI, the global macroeconomic outlook is overcast with the COVID-19 pandemic, with massive dislocations in global production, supply chains, trade and tourism. Financial markets across the world are experiencing extreme volatility; global commodity prices, especially of crude oil, have declined sharply, it said.
“The impact of COVID-19 on inflation is ambiguous, with a possible decline in food prices likely to be offset by potential cost-push increases in prices of non-food items due to supply disruptions,” it said. Taking into account initial conditions, signals from forward-looking surveys and estimates from time series and structural models, CPI inflation is tentatively projected to ease from 4.8 per cent in Q1 of 2020-21 to 4.4 per cent in Q2, 2.7 per cent in Q3 and 2.4 per cent in Q4, the RBI said.
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