New Delhi: The recent surge in infections and regional lockdowns could dampen the recent improvement in demand conditions and delay the return to normalcy, Reserve Bank of India (RBI) Governor Shaktikanta Das said Wednesday.
Announcing the decision of the monetary policy committee to retain the policy rate at 4 per cent and retain the accommodative stance, Das said the decision was taken keeping in mind the need to ‘nurture’ economic recovery at a time it is again facing uncertainty.
The announcement came on a day India recorded 1.15 lakh new Covid-19 cases — the highest ever single-day spike in the country since the pandemic began last year. This, just two days after India’s daily cases crossed one lakh new infections for the first time, ringing alarm bells that the second Covid wave could be more widespread than the first. The continuing surge has prompted different versions of lockdowns across states such as Maharashtra, Delhi and Rajasthan.
Despite these numbers, the RBI kept the growth forecast for 2021-22 at 10.5 per cent, possibly due to a steeper than previously anticipated contraction of 8 per cent in 2020-21. The growth forecast for the April-June quarter is at 26.2 per cent, as against a contraction of 24.4 per cent in the corresponding year ago period.
“Prospects for 2021-22 have strengthened with the progress of the vaccination programme. The recent surge in infections has, however, imparted greater uncertainty to the outlook and needs to be closely watched, especially as localised and regional lockdowns could dampen the recent improvement in demand conditions and delay the return of normalcy,” Das said, adding that the stance of monetary policy will remain accommodative till the “prospects of sustained recovery are well secured while closely monitoring the
evolving outlook for inflation.”
Das stressed that the focus in India must now be on containing the spread of the virus as well as on economic revival. He said India is better prepared to meet the challenges posed by the virus’s resurgence.
“The recent surge in Covid-19 infections, however, adds uncertainty to the domestic growth outlook amidst tightening of restrictions by some state governments … Fiscal and monetary authorities stand ready to act in a coordinated manner to limit its spillovers to the economy at large and contain its fallout on the ongoing recovery,” he said.
Das went on to quote Martin Luther King on concerns around the rising infections: “We must accept finite disappointment, but never lose infinite hope.”
What’s impacting growth
The governor said that various indicators show that economic activity is normalising in spite of the latest Covid spike. “Rural demand remains buoyant and record agriculture production in 2020-21 bodes well for its resilience. Urban demand has gained traction and should get a fillip with the ongoing vaccination drive,” Das said.
The six-member monetary policy committee has projected that retail inflation based on the consumer price index will be at 5.2 per cent in both the first and second quarter of 2021-22 before gradually falling.
“Going forward, the food inflation trajectory will critically depend on the temporal and spatial progress of the south-west monsoon in its 2021 season. Second, some respite from the incidence of domestic taxes on petroleum products through coordinated action by the Centre and states could provide relief on top of the recent easing of international crude prices. Third, a combination of high international commodity prices and logistics costs may push up input price pressures across manufacturing and services,” he said.
The Narendra Modi government decided last week to retain the inflation targeting framework for another five years. According to this framework, the RBI has to target a 4 per cent inflation with a range of +-2 per cent.
(Edited by Manasa Mohan)
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