While unveiling the bi-monthly monetary policy, the Monetary Policy Committee (MPC) of the Reserve Bank of India on Friday said a faster and stronger rebound in the economy is “eminently feasible” if the current momentum of upturn gains ground. MPC, which kept the key policy interest rates unchanged, said the real GDP is likely to grow by 20.6 per cent in the first quarter of 2021-22.
GDP revival: Projecting a negative (-) 9.5 per cent real GDP growth in 2020-21, RBI Governor Shaktikanta Das said, “the deep contraction of the June quarter of 2020-21 are behind us; silver linings are visible in the flattening of the active caseload curve across the country.” The policy panel said the real GDP growth in 2020-21 is expected to be negative at (-)9.8 per cent in the second quarter of 2020-21, (-)5.6 per cent in the third quarter and 0.5 per cent in the fourth quarter. “Real GDP growth for the first quarter 2021-22 is placed at 20.6 per cent,” the panel said. According to Das, the MPC has decided to look through the current inflation hump as transient and address the more urgent need to revive growth and mitigate the impact of Covid. GDP had declined by 23.9 per cent in the June quarter.
Inflation to decline: The RBI’s projections indicate that inflation would ease closer to the target by the fourth quarter of 2020-21. In the September 2020 round of the RBI’s survey, households expect inflation to decline modestly over the next three months, indicative of hope that supply chains are mending. Retail inflation is projected at 6.8 per cent for the second quarter of 2020-21, 5.4-4.5 per cent for the first six months of 2020-21 and 4.3 per cent for the first quarter of 2021-22, the RBI said. The MPC’s assessment is that inflation will remain elevated in the September print, but ease gradually towards the target over Q3 and Q4. Our analysis suggests that supply disruptions and associated margins/mark-ups are the major factors driving up inflation. As supply chains are restored, these wedges should dissipate, it said.
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On the recovery: Das said the economy is likely to witness a three-speed recovery with individual sectors showing varying paces, depending on sector-specific realities. Sectors that would ‘open their accounts’ the earliest are expected to be those that have shown resilience in the face of the pandemic and are also labour-intensive. Agriculture and allied activities; fast-moving consumer goods; two-wheelers, passenger vehicles and tractors; drugs and pharmaceuticals; and electricity generation, especially renewables, are some of the sectors in this category. The second category of sectors to ‘strike form’ would comprise sectors where the activity is normalising gradually. The third category of sectors would include the ones which face the ‘slog overs’, but they can rescue the innings.
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On the economy: The Indian economy is entering into a decisive phase in the fight against the pandemic. Relative to pre-Covid levels, several high-frequency indicators are pointing to the easing of contractions in various sectors of the economy and the emergence of impulses of growth. “Covid-19 has tested and severely stretched our resources and our endurance. Our travails are not over yet and a renewed rise in infections remains a serious risk,” Das said.
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