Indian Economy Better Placed To Strengthen Recovery Despite Adverse Global Events: RBI Annual Report

The Indian economy is relatively better placed to strengthen the recovery that is underway and improve macroeconomic prospects going forward despite adverse international developments including the geopolitical conflict in Europe, surging commodity prices and the coronavirus pandemic, the Reserve Bank of India on Friday said in its Annual Report 2021-22.

“The prospects for agriculture and allied activities are brightening at this juncture on the prediction of a normal monsoon [at 99 per cent ±5 per cent of long period average (LPA)], with terms of trade gains anticipated from exports… Early indicators point to revival of economic activity across other sectors,” according to the central bank’s annual report.

It added that capacity utilisation in several industries is moving closer to normal levels, although rising input costs and persisting supply bottlenecks, as for instance in semiconductors for the automobile sector, may impede or delay a fuller recovery.

The RBI said that from the supply side, agriculture exhibited pandemic-proofing and benefited from exemption from containment measures.

“With the lessons of the experience of 2021-22, contact-intensive sectors are expected to rebound over the year ahead, with positive implications for the workforce and for consumption demand,” it added.

The RBI’s annual report said the thrust given to infrastructure and investment in the Union Budget 2022-23 will play a major role in shaping the post-COVID-19 recovery. The Pradhan Mantri Gati Shakti, which brings together infrastructure plans under various ministries under a common digital platform, is expected to improve efficiency in execution and reduce logistic costs.

“Similarly, policy support for the digital economy, financial technology, and climate transition would enable India to participate and benefit from the fourth industrial revolution,” it added. Bank credit growth has begun to pick up to track nominal GDP growth and banks are regaining bottom lines, the RBI said.

India’s gross domestic product (GDP) grew 5.4 per cent in the December 2021 quarter, which was lower than 8.4 per cent growth in the previous quarter. However, it was much higher than 0.5 per cent growth that was seen in the corresponding period of the previous fiscal 2020-21. The GDP grew 1.6 per cent in the fourth quarter of FY21.

The National Statistical Office (NSO) has placed real GDP growth at 8.9 per cent in 2021-22, surpassing its pre-pandemic level (of 2019-20) by 1.8 per cent.

The Headwinds

The RBI said The escalation of geopolitical tensions into war from late February 2022 has delivered a brutal blow to the world economy, battered as it has been through 2021 by multiple waves of the pandemic, supply chain and logistics disruptions, elevated inflation and bouts of financial market turbulence, triggered by diverging paths of monetary policy normalisation.

“Negative externalities are already rippling through financial and commodity markets, the international trade and fi nancial systems, supply chains and the global geopolitical order. Surging food and fuel prices, in particular, and shortages of essential items are impacting the disadvantaged adversely,” it said.

It said the global recovery is expected to suffer a significant loss of momentum in 2022. Risks are large and to the downside – war escalation; shortages; resurgence of the pandemic; slowdown in China; and climate stress overshooting the Paris agreement goals. In its April 2022 WEO, the IMF has marked down global growth for the year sharply to 3.6 per cent from 6.1 per cent in 2021.

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