The Indian economy continues to wrestle with COVID’s second wave, though cautious optimism is returning, the RBI has said in its monthly bulletin for June 2021, stressing that by current assessment, the second wave has hit domestic demand.
“On the brighter side, several aspects of aggregate supply conditions — agriculture and contactless services — are holding up, while industrial production and exports have surged compared to last year amid pandemic protocols,” said the report.
As per the report, the economy is likely to suffer an output loss of about Rs 2 lakh crore in 2021-22.
It said the speed and scale of vaccination would shape the path of recovery. “The economy has the resilience and the fundamentals to bounce back from the pandemic and unshackle itself from pre-existing cyclical and structural hindrances.”
The RBI, while releasing the bulletin on June 16, included the monetary policy statement, three articles and current statistics. The three articles are: State of the economy; macro-economic view of the shape of India’s sovereign yield curve; and fiscal framework and quality of expenditure.
On June 4, the monetary policy committee left the key rates unchanged after the bi-monthly policy review meeting, saying the policy stance will remain accommodative as long as necessary to review the growth in the economy.
A recent spike in inflation has alarmed economists. The May retail inflation spiked to a six-month high of 6.3 per cent. Since February 2019, the RBI has cut its key lending rate, repo, by 250 basis points.
In the macro-economic view of the country’s sovereign yield curve, the central bank found that the level of the yield curve has undergone a downward shift from the second quarter of 2019, reflecting the ultra-accommodative stance of monetary policy.
“As India unwinds the fiscal stimulus and embarks on the path of fiscal adjustment, it is necessary to emphasize ‘how’ over how much,” said the bulletin. In the ‘Fiscal framework and quality of expenditure’ it proposes a few quantifiable indicators — ratios of revenue expenditure to capital outlay and revenue deficit to gross fiscal deficit along with threshold levels for them, that can be suitably blended into the fiscal fabric for a sustainable growth trajectory, noted the bulletin.