India’s Economy Recovering But Some Headwinds: RBI

<span style="font-weight: 400;">The Reserve Bank of India (RBI) has said in a recent report that there is more evidence of India’s economy recovering quickly after the deep Covid-19 shock. The central bank in its ‘State of the economy’ report said there are some headwinds but added that India is on

BY Realty Plus
Published - Dec 26, 2020 5:03 AM

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The Reserve Bank of India (RBI) has said in a recent report that there is more evidence of India’s economy recovering quickly after the deep Covid-19 shock. The central bank in its ‘State of the economy’ report said there are some headwinds but added that India is on a ‘faster growth trajectory'. More evidence has been turned in to show that the Indian economy is pulling out of COVID-19’s deep abyss and is reflating at a pace that beats most predictions. The central bank in its report cited key indicators like real GDP, which is expected to break out into positive territory in the third quarter of the year. The RBI report said India’s recovery is being aided by the improving Covid-19 situation in the country. India is bending the Covid infection curve: since mid-September, barring localised surges, infections are slanting downwards week after week, and the recovery rate1 is nudging 95 per cent. It also said that many sectors like auto and capital goods, which had been hit hard during the initial lockdown, are expecting a turnaround in future earnings. Meanwhile, healthcare, IT and FMCG companies are now aiming for a stronger earnings outlook. Moreover, intrinsic strength in the manufacturing and services sectors is being built as debt servicing capacity is getting reinforced and leverage is being brought down. India’s farm sector is also forging ahead, backed by path breaking marketing reforms. The central bank further noted that high-frequency indicators are also performing well at the moment and if the momentum continues, India’s economy will see a much stronger recovery. Abstracting from the inherent flux in high-frequency indicators, the underlying trend would reveal that the pick-up in momentum of economic activity that commenced with the onset of the second half of 2020-21 is sustained, the RBI report said. Despite the quicker recovery, the central bank continues to be worried about the consistently high rate of retail inflation which came down just marginally in November to 6.93 per cent. It still remains higher than the RBI’s target of 2-6 per cent. RBI said, “Efforts need to be redoubled to excoriate the ‘worm in the apple’ inflation before it hurts the impulses of growth that are taking root.” Efficient, effective and timely supply management, including checking runaway retailer margins and reducing the incidence of indirect taxes on consumers, can break the back of the inflation pressures before they incipiently broaden and work against the intent of fiscal and monetary stimuli. Although still significant headwinds persist on the path to a durable recovery, steadfast efforts by all stakeholders could help in recouping lost incomes and/or putting back India on a faster growth trajectory.