RBI Governor Shaktikanta Das said on Friday, “India’s GDP to contract by 9.5 per cent in FY21.” The governor made the statement while addressing media at the end of the three-day meeting of the newly-constituted Monetary Policy Committee (MPC).
He added, however, that given the current momentum if some sectors show signs of recovery which are then maintained, a faster and stronger rebound is eminently feasible.
According to the RBI, the 9.5 per cent contraction will be due to disruptions caused by the Covid-19 pandemic that has affected economic activities. Growth “may break out of contraction and turn positive during January-March” due to improving signs of recovery, the central bank estimates. It goes on to add that the Indian economy is entering into a decisive phase in the fight against the pandemic and silver linings are visible in terms of flattening of the curve across the country.
RBI Governor Shaktikanta Das explained that India’s recovery is likely to be a three-speed recovery, with individual sectors showing varying paces depending on sector-specific realities.
Several indicators point to the revival of economic activity. Das, Governor of the Reserve Bank of India said, The rural economy looks resilient, kharif sowing has already surpassed last year’s acreage and food grain is set to touch a record high.
“Sectors that would open their accounts the earliest are expected to be those that have shown resilience in the face of the pandemic and are also labour-intensive,” Shaktikanta Das said.
He went on to add that migrant labour is returning to work in urban areas which is why factories and construction are resuming and energy consumption is on the rise.
Agriculture and allied activities, fast-moving consumer goods, two-wheelers, passenger vehicles and tractors, drugs and pharmaceuticals, and electricity generation (especially renewable) are some of the sectors that fall into this category.
Shaktikanta Das also said that the country’s “focus must shift from containment to revival”.
NR Bhanumurthy, Professor at the National Institute of Public Finance & Policy told India Today, “The 9.5 per cent GDP forecast is in line with what RBI and other agencies have maintained for the past few months. But we might see some improvement given that state and Central government policies to boost India’s economic growth.”
Commenting on RBI forecast of an uptick in the economy by January 2021, professor Bhanumurthy said, “Given the initiatives that the government is taking and the kind of revival we are currently seeing in sectors like agriculture, automobiles there is a possibility that if implementation of policies is done correctly, the Indian economy could be back on track sooner than expected.”
Global and domestic rating agencies also expect India’s GDP to contract this fiscal given the pandemic-induced disruptions. According to the World Bank, India’s GDP growth is likely to contract 9.6 per cent in FY21, a further contraction from its earlier forecast of 3.2 per cent.
Fitch has also forecast the country’s GDP to contract to 10.5 per cent in the current fiscal, a downward revision from negative 5 per cent earlier.
RBI left key interest rates unchanged as widely expected, since it expects inflation to remain at elevated levels in September, and ease only in the third and fourth quarters of the current financial year.
The RBI’s Monetary Policy Committee kept the repo rate, its key lending rate, unchanged at 4 per cent while the reverse repo rate or the key borrowing rate remained at 3.35 per cent. The MPC also decided to continue with an accommodative stance as long as necessary – at least during the current financial year and into the next year – to revive growth on a durable basis and mitigate the impact of Covid-19.