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Monday, April 19, 2021

RBI: Recovery consumption based, shallow & short lived

According to an RBI report, there is little doubt today that a recovery based on a revival of consumption is underway.

By: ENS Economic Bureau | Mumbai |
March 2, 2021 3:49:16 am
rupee cooperative bank pune, Reserve Bank of India, Rupee Cooperative Bank, Rupee cooperative bank world bank, rupee cooperative bank news, pune news, indian expressFollowing the announcement of a slew of measures by the Reserve Bank on February 5, however, the benchmark eased to 5.96 per cent by February 11.

The Reserve Bank of India (RBI) has said the ongoing economic recovery is based on a revival of consumption, while the key thing is to whet the appetite for investment, especially the “missing” private investment.

According to an RBI report, there is little doubt today that a recovery based on a revival of consumption is underway. “The jury leans towards such recoveries being shallow and short-lived,” it said. “The key is to whet the appetite for investment, to rekindle the animal spirits — a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities,” the RBI report on ‘State of the Economy’ said.

“All engines of aggregate demand are starting to fire; only private investment is missing in action. The time is apposite for private investment to come alive,” the RBI said. Fiscal policy, with the largest capex Budget ever and emphasis on doing business better, has offered to crowd it in. “Will Indian industry and entrepreneurship pick up the gauntlet?” the report said.

The central bank said economic activity is gaining steam as Covid pandemic incidence recedes and the ongoing vaccine rollout releases pent-up optimism. Information pouring in from a host of indicators attests to a quickening pace of normalisation. By January 31, India’s weekly Covid fatalities fell below 1,000, the lowest in the last 8 months. With the doubling rate decreasing to 578.3 days, active cases accounted for just 1.4 per cent of the total cases. In fact, as of January 31, the number of active cases had dropped below 1.7 lakh, it said.

“In terms of nominal GDP, 96 per cent of pre-pandemic economic activity has been restored, assuming that the National Statistical Office’s first advance estimates hold,” the RBI study said. Early corporate results for Q3:2020-21 indicate that sales continue to improve as they rise out of contraction; combined with a fall in raw material costs and saving on account of lower interest expenses, there has been a jump in operating profits.

It said pro-cyclical industries in the non-financial sector — auto, steel and cement — registered a sharp rebound in volumes, increase in output prices in a strong pricing environment and adopted cost cutting measures. The information technology (IT) sector has clearly demonstrated pandemic-proofing, notching up among its strongest quarterly sales growth in several years.

According to the RBI, perceptions have improved significantly over all preceding rounds of RBI consumer confidence survey conducted since September 2020.

For the year ahead, consumers expect an overall improvement in the general economic situation and in employment conditions. The RBI report is optimistic on the liquidity front. “The message given is unambiguous: liquidity will remain ample [total absorption under the liquidity adjustment facility (LAF) was `7.1 lakh crore on February 25, 2021]; the Reserve Bank will ensure ample liquidity (up to February 19, 2021),” the study said.

“The outlook for the global economy is suddenly besieged by surges in new, speedily communicable strains of the virus against which vaccine makers must rapidly adapt. It is in this context that a well-coordinated and swift strategy for deployment of vaccines globally assumes urgency,” it said. Considerable uncertainty surrounds the outlook although on balance, the gathering strength of the recovery and its broadening ambit hold out optimism and the will to survive and revive, it said.

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