Beating predictions, economy pulling out of Covid's deep abyss: RBI


Mumbai, Dec 24 (IANS): India's economy is pulling out of Covid-19's deep abyss at a faster pace than most predictions, Reserve Bank of India said in its monthly bulletin for December.

"Since the assessment presented in the last month's article, 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 bulletin said.

"Although headwinds blow, steadfast efforts by all stakeholders could put India on a faster growth trajectory."

The bulletin cited the pandemic- imposed retrenchment of Q1FY21 turned out to be much shallower in Q2 and the economy is reflating at a pace that beats most predictions.

"Second, the update of the economic activity index (EAI) in the nowcasting assessment presented in last month's bulletin indicates that the real GDP growth is expected to break out into positive territory in Q3 -- albeit, to a slender 0.1 per cent."

"Third, 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 -- the intermediate target under a flexible inflation targeting framework and the most potent communication tool -- were revised upwards by 200 basis points from October and 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."

According to the bulletin, two important forces are 'conspiring to bless' this turning of the page on the virus.

"First, India is bending the Covid infection curve: since mid-September, barring localised surges, infections are slanting downwards week after week, and the recovery rate is nudging 95 per cent,"

A battery of vaccine candidates has successfully hit not only trial status but also suitability for transportation, trials, usage in India, it said.

"Second, it is now getting clearer that there is a system to the fiscal stimulus, a 'method' if you will. Starting out with liquidity or guarantee and cash or kind support to the economy -- the need of the hour when the pandemic struck and displaced crores from their lives and livelihoods -- it is transiting in a calibrated fashion to supporting investment and consumption demand," the bulletin said.

"The fiscal measures have been sequenced in a designed shift in focus from consumption expenditure in Pradhan Mantri Garib Kalyan Package (PMGKP) to investment expenditure in Aatmanirbhar 2.0 and 3.0 (Chart 3). On the whole, the above-the-line fiscal stimulus will likely boost growth by close to two per cent of GDP in 2020-21."

"In other words, it is prudent to look beyond the volatility inherent in high frequency indicators."

Furthermore, it pointed out that companies are doing so already -- an analysis of 12-months ahead forward earnings revealed an improvement in the outlook for a large number of companies.

"Sectors such as auto and capital goods, which had been hit hard by the lockdown are expecting a turnaround in forward earnings," the bulletin said.

"Healthcare, information technology (IT) and fast moving consumer goods (FMCG) companies are sighting 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."

 

 

  

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Title: Beating predictions, economy pulling out of Covid's deep abyss: RBI



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