Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday forecast a sharp turnaround in Covid-19-hit India’s growth rate to 7.4 per cent in the next fiscal (2021-22).
For 2021, the IMF has projected sizable V-shaped recoveries, close to 9 percentage points for global GDP, he said. “India is expected to post a sharp turnaround and resume its pre-Covid-19 pre-slowdown trajectory by growing at 7.4 per cent in 2021- 22,” Das said in a media conference, forecasting a sharp economic recovery in the next fiscal.
Economists, global banks and rating agencies had recently predicted India to grow below 2 per cent in 2020. “India is among the handful of countries that is projected to cling on tenuously to positive growth at 1.9 per cent (for 2020). In fact, this is the highest growth rate among the G20 economies,” Das said.
On the performance of the economy, the Governor said, “Since March 27, 2020, the macroeconomic and financial landscape has deteriorated, precipitously in some areas; but light still shines through bravely in some others.”
According to him, early developments suggest that inflation is on a declining trajectory, having fallen by 170 basis points from its January 2020 peak. In the period ahead, inflation could recede even further, barring supply disruption shocks and may even settle well below the target of 4 per cent by the second half of 2020-21. “Such an outlook would make policy space available to address the intensification of risks to growth and financial stability brought on by COVID-19. This space needs to be used effectively and in time,” Das said.
Das said the contraction in exports in March 2020 at 34.6 per cent has turned out to be much more severe than during the global financial crisis. The World Trade Organization sees global merchandise trade contracting by as much as 13-32 per cent in 2020. Global financial markets remain volatile, and emerging market economies are grappling with capital outflows and volatile exchange rates, he said.
The disruptions caused by Covid-19 have, however, more severely impacted small and mid-sized corporates, including NBFCs and micro finance institutions in terms of access to liquidity.
Das said surplus liquidity in the banking system has increased sharply in the wake of sustained government spending. Systemic liquidity surplus, as reflected in net absorptions under the Liquidity Adjustment Facility (LAF), averaged Rs 4.36 lakh crore during the period March 27- April 14, 2020. The RBI undertook three auctions of targeted long term repo operations (TLTRO), injecting cumulatively Rs 75,041 crore to ease liquidity constraints in the banking system and de-stress financial markets.
Another TLTRO auction of Rs 25,000 crore was conducted on April 17. In response to these auctions, financial conditions have eased considerably, as reflected in the spreads on money and bond market instruments, he said.
Moreover, activity in the corporate bond market has picked up appreciably, with several corporates making new issuances. There are also indications that redemption pressures faced by mutual funds have moderated, Das said.