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Happy Days Are Here Again, Yo!

Out of COVID ICU, Economy is North-Bound

Repo rate unchanged, consumer confidence reviving, says RBI

BY B N KUMAR

The Budget will have a cascading multiplier effect going forward, particularly in improving the investment climate and reinvigorating domestic demand, income and employment, RBI Governor Shaktikanta Das said.

MUMBAI, Feb 5 (The CONNECT) - Undoing the damage inflicted by COVID-19, the Indian economy is poised to move in only one direction and that is upwards, RBI said predicting real GDP growth at 10.5 per cent in 2021-22.

RBI, which maintained status quo of the repo rate at four per cent, said inflation has eased below the upper tolerance level of 6 per cent for the first time during the COVID-19 period.

“It is our strong conviction, backed by forecasts, that in 2021-22, we would undo the damage that COVID-19 has inflicted on the economy,” RBI Governor Shaktikanta Das said at the end of the three-day Monetary Policy Committee (MPC) meeting.

After the chaos and despair of the year gone by, through which we have sailed together and shall continue to sail ahead, he said quoting Mahatma Gandhi: “We are daily witnessing the phenomenon of the impossible of yesterday becoming the possible of today.” Inflation outturns in the last two months have turned out to be better than what was expected at the time of the December meeting. Going ahead, factors that could shape the food inflation trajectory in coming months, including the likely bumper kharif harvest arrivals in markets, rising prospects of a good rabi crop, larger winter supplies of key vegetables and softer poultry demand on fears of avian flu are all indicative of a stable near-term outlook.

Stating that the new year has begun on a strong positive note with vaccination drives in major economies as well as in India, Mr Das said “while the year 2020 tested our capabilities and endurance, 2021 is setting the stage for a new economic era in the course of our history”.

He explained that consumer confidence is reviving, and business expectations of manufacturing, services and infrastructure remain upbeat. The movement of goods and people and domestic trading activity are growing at a robust pace. Electricity and energy demand reflect a broader normalisation of economic activity than in December, even as fears of a second wave abate. Data for sales and new launches of residential units in major metropolitan centres reflect a renewed confidence in the real estate sector. Manufacturing, services and composite purchasing managers’ indices (PMI) are in expansion zones – the manufacturing PMI rose to 57.7 in January 2021 from 56.4 in December 2020 and and the services PMI rose to 52.8 in January 2021 from 52.3 in December 2020.

Furthermore, the central bank governor said, the vaccination drive is expected to provide an impetus for the restoration of contact intensive sectors and a leading edge to the Indian pharma industry in the global market. Foreign Direct Investment and Foreign Portfolio Investment to India have surged in recent months, reposing faith in the impressive recovery in the Indian economy. Ahead of a broader infrastructure revival, the speed of daily national highways construction is rising and the pace of award of national highway projects in 2020-21 has doubled year-on-year.

Mr Das remarked that the flow of financial resources to the commercial sector has been improving, particularly in respect of non-food bank credit and via commercial paper (CPs), credit by housing finance companies, private placement of corporate bonds and foreign direct investment. The total flow of these resources is ₹8.85 lakh crore up to January 15, compared with ₹7.97 lakh crore during the corresponding period of last year. The latest bank lending survey of the RBI suggests further sequential improvement in sentiment on loan demand across all sectors right up to Q2:2021-22. Taking these factors into consideration, real GDP growth is projected at 10.5 per cent in 2021-22 – in the range of 26.2 to 8.3 per cent in H1 and 6.0 per cent in Q3.

The Union Budget 2021-22, he said, has provided a strong impetus for revival of sectors such as health and well-being, infrastructure, innovation and research, among others. This will have a cascading multiplier effect going forward, particularly in improving the investment climate and reinvigorating domestic demand, income and employment. The investment-oriented stimulus under AatmaNirbhar 2.0 and 3.0, given during the peak of the pandemic, has started working its way through and is improving the spending momentum along with the quality of public investment. Both will facilitate regaining India’s growth potential over the medium-term. The projected increase in capital expenditure augurs well for capacity creation and crowding in private investment, thereby improving the prospects for growth and building credibility around the quality of expenditure, he added.

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