From COVID's 'deep abyss', economy reflating faster than expected: RBI

The Indian economy is pulling out of COVID-19’s “deep abyss” and is reflating at a pace that beats most predictions, said an article posted on Reserve Bank of India’s (RBI) website on Thursday (December 24).

The article titled “State of economy” is written by more than 15 authors and the RBI said, “Views expressed in this article are those of the authors and do not necessarily represent the views of the Reserve Bank of India”.

According to the article, “Over the month gone by, more evidence has been turned in to show that the Indian economy is pulling out of COVID-19’s deep abyss and is breaking out amidst winter’s lengthening shadows towards a place in the sunlight… and the economy is reflating at a pace that beats most predictions. Although headwinds blow, steadfast efforts by all stakeholders could put India on a faster growth trajectory.”

Also read: Expect economy to reach pre-Covid levels by FY22 end, says NITI Aayog VC

“Real GDP growth is expected to break out into positive territory in Q3 – albeit, to a slender 0.1%,” it added, quoting reports.

Two important forces are conspiring to bless this turning of the page on the virus, the authors said.

“First, India is bending the COVID infection curve: since mid-September, barring localised surges, infections are slanting fashion to supporting investment and consumption demand. 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 Aatma Nirbhar2.0 and 3.0,” the article said.

“On the whole, the above-the-line fiscal stimulus will likely boost growth by close to 2% of GDP in 2020-21. In other words, it is prudent to look beyond the volatility inherent in high frequency indicators. 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 added.

In the conclusion, the authors said, “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 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 normalisation of the economy.”

They added, “At the same time, 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.

“Well-coordinated country-wide logistics would usher in a smooth but swift distribution of vaccines up to the last mile. 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.”