Prospects brightening for economy as second Covid wave wanes: RBI bulletin

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MUMBAI: Prospects are encouraging for the Indian economy to achieve “escape velocity” from the pandemic as the second wave of Covid-19 fades and future readiness remains on war alert, according to a RBI Newsletter posted Thursday.
An article on the state of the economy, published in the September newsletter, said that aggregate demand is gaining ground, while on the supply side, IIP and core industries reflect an improvement in industrial activity and indicators of the services sector point to a sustained recovery.
“In August, we believe that India passed a tipping point that is consolidating and prospering in September,” said the article written by a team led by RBI Deputy Governor Michael Debabrata Patra.
In addition, he said that the trajectory of inflation is narrowing more favorably than expected.
“As the scars of the pandemic heal and supply conditions reestablish with productivity increases, a sustained moderation in core inflation can be expected, which will strengthen the stance of the growth-support monetary policy,” said.
The central bank, however, said that the opinions expressed in the article are those of the authors and do not necessarily represent the views of the Reserve Bank of India (RBI).
The article further said that domestic economic conditions marked a turning point in August when growth impulses gained momentum with the progressive opening of the economy and the expansion of the vaccination campaign.
“The outlook is encouraging for the economy to reach escape velocity from the pandemic as the second wave wanes and preparation for the future remains on war alert,” he said.
On aggregate demand, he said that e-way bills remained above February 2020 pre-pandemic levels, indicating an increase in GST collection going forward.
In addition, retail sales of motor vehicles registered growth on a low basis in August last year; rail freight continued to be impressive; and the fast-moving consumer goods sector rebounded, among others. Likewise, merchandise exports continued their stellar performance.
“In the August issue, we wrote about the music of fall drowning out the songs of spring. We did so because we believe that, at the current juncture, the Indian economy is balanced for that deep gravitational pull that will launch it on its aspirational growth trajectory.
“As the unnerving effects of the pandemic recede, giving way to latent growth impulses, the choice of strategy becomes critical,” the authors said.
Speaking of the price situation, the article said that the trajectory of inflation is turning down more favorably than anticipated.
The result of August inflation has vindicated the call of the six-member Monetary Policy Committee headed by the RBI governor to treat the May price shock as transitory and analyze it, he said.
The moderation in the prices of various foods is likely to extend into the third quarter of the fiscal year and contain upward price pressures from underlying prices and fuel on headline inflation.
The task now is to consolidate these gains and carry them forward into the fourth quarter as well. India is a price taker with regard to fuel prices, which have broadly aligned over time with international prices, he noted.
In addition, he said that the outlook for core inflation is tied to the future fortunes of the Indian economy.





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