RBI projects 10.5% growth, but flags worries over COVID surge

at 3:56 pm
Economic growth
RBI Governor Shaktikanta Das

New Delhi (NVI): The Reserve Bank of India (RBI) today projected a rosy picture of India’s economic recovery, maintaining the forecast of 10.5 percent growth for the current financial year (2020-21).

However, it added that the recent surge in coronavirus cases in the country has created uncertainty regarding the economic growth recovery.

RBI Governor Shaktikanta Das, while presenting the Monetary Policy review, said the apex bank will maintain an accommodative stance, as long as necessary, to mitigate the impact of the COVID-19 pandemic.

He said the RBI decided to keep the repo rate (bank lending rate) unchanged at 4 per cent and reverse repo rate at 3.35 per cent.

Giving growth projections, Das said, “The projection of real GDP growth for 2021-22 is retained at 10.5 percent consisting of 26.2 percent in Q1, 8.3 percent in Q2, 5.4 percent in Q3 and 6.2 percent in Q4.”

In its last policy review, the RBI had projected a GDP growth rate of 10.5 percent for the financial year 2021-22.

Talking about the quick economic recovery, Das said rural demand remains buoyant and the record agriculture production for 2020-21 augurs well for its resilience.

“Urban demand has been gaining strength on the back of normalisation of economic activity and should get a fillip with the ongoing vaccination drive,” the RBI chief said.

He said the fiscal stimulus from increased allocation for capital expenditure under the Union Budget 2021-22, expanded production-linked incentives (PLI) scheme and rising capacity utilisation (from 63.3 percent in Q2 to 66.6 percent in Q3:2020-21) should provide strong support to investment demand and exports.

Firms engaged in manufacturing, services and infrastructure polled by the Reserve Bank in March 2021 were optimistic about a pick-up in demand and expansion in business activity into 2021-22, he said.

Consumer confidence, on the other hand, has dipped with the recent surge in COVID infections in some states imparting uncertainty to the outlook,” Das said.

The RBI Governor said that India’s distribution programme and its effect on the ground are two major factors that will determine global economic recovery.

Mitigation of inflation would depend on the supply side measures and easing of international prices, he said.

Das said, “the recent surge in Covid-19 infections has created uncertainty over economic growth recovery” and that vaccine distribution and its efficacy is key to global economic recovery.

India is witnessing a strong second wave of coronavirus pandemic, with cases surging at a high rate. The single day fresh cases reported yesterday were 1,15,736, with 630 deaths.