RBI says Indian economy is recovering faster, warns of “worm in apple”

The Reserve Bank of India (RBI) said in a recent report that there is further evidence of the rapid recovery of the Indian economy following the deep shock of Covid-19. The central bank in its “state of the economy” report said there are some headwinds, but added that India is on a “faster growth trajectory”.

“From the assessment presented in last month’s article, further evidence was provided to show that the Indian economy is retreating from the deep abyss of COVID-19 and is reflecting at a rate that exceeds most forecasts,” he said. said the RBI.

The central bank in its report cited key indicators such as real GDP, which is expected to enter positive territory in the third quarter of the year. The RBI report states that India’s recovery is aided by the improvement of the Covid-19 situation in the country.

“India is bending the curve of Covid infections: since mid-September, barring localized peaks, infections have been decreasing week by week and the recovery rate1 is reaching 95%,” the report said.

The key indicators shine

He also said that many sectors such as auto and capital goods, which were hit hard during the initial lockdown, are expecting a turnaround in future earnings. Meanwhile, healthcare, IT and FMCG companies are now aiming for stronger earnings prospects.

“In addition, inherent strength is being built in the manufacturing and services sectors by strengthening debt service capacity and deleveraging. India’s agricultural sector is also moving forward, supported by groundbreaking marketing reforms, ”the report said.

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The central bank also noted that the high frequency indicators are also doing well at the moment and if the momentum continues, the Indian economy will see a much stronger recovery.

“Subtracting from the inherent flow of high-frequency indicators, the underlying trend would reveal that the recovery in the momentum of economic activity that began with the start of the second half of 2020-21 is sustained,” says the RBI report.

He also said the absence of India’s “dreaded second wave” of coronavirus has so far boosted the momentum of the recovery.

“Yep, the contractions predicted by various agencies for the year as a whole are being reduced and, if current momentum is maintained, the expected rebound in the last quarter of the year could be stronger than assumed under the underlying assumptions. “RBI added his report.

‘Worm in the apple

Despite the faster recovery, the central bank continues to be concerned about the consistently high rate of retail inflation, which fell only marginally in November to 6.93 percent. It still remains above the RBI target of 2-6%.

RBI said, “We need to redouble our efforts to eliminate ‘worm in apple’ inflation before it hurts the growth impulses that are taking root.”

“Efficient, effective and timely supply management, including controlling the margins of runaway retailers and reducing the impact of indirect taxes on consumers, can break the back of inflationary pressures before they widen incipiently and work against intent of fiscal and monetary stimuli “added.

“While strong headwinds still persist on the path to a lasting recovery, sustained efforts by all stakeholders could help recover lost revenues and / or put India back on a faster growth trajectory.”