Forecasting a V-shaped recovery, the Reserve Bank of India has said that if growth momentum continues and inflation stays benign, there would room for policy action to support growth. The observation was made in the central bank’s ‘State of the Economy’ report. It comes at a time when the central bank has started “normalising” the liquidity in the money markets by draining out the surplus it had pumped in to stave off an economic crisis in the wake of the Covid pandemic.
“Recent shifts in the macroeconomic landscape have brightened the outlook, with GDP in striking distance of attaining positive territory and inflation easing closer to the target. If these movements sustain, policy space could open up to further support the recovery,” the RBI said in the report.
Stating that the worst of the Covid crisis is now behind, the RBI — quoting William Shakespeare — wrote, “Recent high-frequency indicators suggest that the recovery is getting stronger in its traction and soon the winter of our discontent will be made glorious summer.”
The report stated that consumer confidence is expected to improve from January 2021, peak in July 2021 and continue till September ahead of the next festival season. “Going forward, two positive features are going to shape up the fiscal landscape in H2. First, the general government gross fiscal deficit to GDP ratio is likely to moderate to 10.4%. This development will be revenue-driven as the war effort of H2 bears fruit and receipts return to positive territory. Second, the quality of the fiscal deficit is also likely to be better in H2,” the report said.
The RBI also sees a revival in non-oil exports due to rise in shipments of drugs and pharmaceuticals, agricultural items and iron ore. “India is already manufacturing 60% of the vaccines sold globally. Furthermore, the production-linked incentive scheme introduced for bulk drugs and medical devices has received a positive response and is expected to support pharmaceutical and medical exports going forward,” RBI said.