The Reserve Bank of India on Thursday said that the country’s economy was recovering at a faster pace than expected, and that the growth rate may enter the positive territory in the third quarter (October-December).
The central bank has however flagged the need to check the rising inflation rate so that it does not affect growth, in its monthly bulletin for December,
Update of the economic activity index in the nowcasting assessment presented in last month’s Bulletin indicates that real GDP growth is expected to break out into positive territory in Q3 – albeit, to a slender 0.1%, the economy will clock a growth rate of 14.2 per cent on top of the 0.4 per cent growth rate in the second half of 2020-21”, said RBI
“Over the month gone by, more evidence has been turned in to show that the Indian economy is breaking out amidst winter’s lengthening shadows towards a place in the sunlight,” the study said. The economy dipped by a record 23.9 per cent in the June quarter but the contraction narrowed down to 7.5 per cent in the September quarter.
The RBI paper said the fourth bi-monthly resolution of the monetary policy committee (MPC) did maintain status quo on the policy rate and stance, but a powerful message was conveyed: growth projections were revised upwards by 200 basis points from October. If they hold, the Indian economy will clock a growth rate of 14.2 per cent in the first half of 2021-22 on top of 0.4 per cent in the second half of 2020-21, the study said.
On the whole, the above-the-line fiscal stimulus will likely boost growth by close to 2 per cent of GDP in 2020-21. In other words, it is prudent to look beyond the volatility inherent in high frequency indicators, the RBI said. “Companies are doing so already – an analysis of 12-months ahead forward earnings reveals improvement in the outlook for a large number of companies,” it said.
Going forward, in the second half of 2020-21, while the fisc is likely to benefit from better receipts in line with normalisation of economic activity, the push given through various expenditure measures by the Government, essentially on-budget ones through AtmaNirbhar 2.0 and 3.0 is likely to materialise, the RBI study said.
“The absence of the dreaded ‘second wave’ of pandemic in India so far has imparted elevation to this momentum in an environment of supportive macroeconomic policies, spurring a faster unlock and normalization of the economy," it added.
