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Wednesday, January 19, 2022

State of the economy report: Outlook remains upbeat, says RBI

🔴 For the Indian economy, the recovery is spearheaded by an uptick in private investment through November-December alongside a turnaround in bank credit offtake and high capex from the government sector (Centre and states), it said.

By: ENS Economic Bureau | Mumbai |
Updated: December 16, 2021 7:16:26 am
Indian economyThe Indian economy bounced back strongly in Q2FY22, with GDP surpassing its pre-pandemic levels, and inflation broadly aligning with the target, it said. (File)

While the global economy remains hostage to heightened uncertainty with Omicron sparking fresh containment measures, a host of incoming high frequency indicators are looking upbeat and consumer confidence is gradually returning in India, the Reserve Bank of India (RBI) said.

For the Indian economy, the recovery is spearheaded by an uptick in private investment through November-December alongside a turnaround in bank credit offtake and high capex from the government sector (Centre and States), it said. “In conjunction, the employment situation has brightened. The outlook remains upbeat, though concerns revolving around the spread of the new Omicron variant are surfacing,” the RBI said in its ‘State of the economy’ report.

The Indian economy bounced back strongly in Q2 of 2021-22, with GDP surpassing its pre-pandemic levels, and inflation broadly aligning with the target, the RBI said.

Going forward, the emergence of the Omicron strain has heightened the uncertainty in the global macroeconomic environment, accelerating risks to global trade with resumption of travel restrictions/ quarantine rules at major ports and airports, it said.

The report said the Indian economy continues to forge ahead, emerging out of shackles of pandemic. The ongoing revival is driven by a confluence of factors, viz., release of pent-up demand, government’s push for capital expenditure, robust external demand and normal monsoon. Faster resumption of contact-intensive services and speedy restoration of consumer confidence brightens near-term prospects, it said.

The report said the ongoing supply-side constraints are likely to keep input prices and freight rates at elevated levels and could act as a drag on overall exports. While the low domestic infection count and healthy pace of vaccinations augurs well for the economy, looming threat of Omicron calls for observing greater caution and readiness to respond swiftly, it said.

“Aggregate demand conditions point to sustained recovery, albeit, with some signs of sequential moderation,” the RBI report said. On the supply front, farm sector situation remains strong with impressive progress of Rabi sowing, while the manufacturing and services record strong improvement on strengthening demand conditions and surge in new business, it said.

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