Near-term Prospects for Indian Economy Bright: RBI

A gradual decline in India’s second wave of COVID-19 infections and an aggressive vaccination push have brightened the near-term prospects for the economy, the Reserve Bank of India said in its July bulletin, released on Thursday.

The RBI said there had been a rise in mobility indicators and attendance at workplaces, as well as jumps in advance tax payments, power consumption, digital transactions and other indicators in the month of June, all of which it considered forerunners to a revival in business and consumer confidence.

“While several high frequency indicators of activity are recovering, a solid increase in aggregate demand is yet to take shape,” the RBI said.

“On the supply side, agricultural conditions are turning buoyant with the revival in the monsoon, but the recovery of manufacturing and services sectors has been interrupted by the second wave.”

Although India’s second wave is ebbing, the infection rate is rising again, worrying authorities who are concerned that pilgrimages and tourism could prove to be “superspreader” events.

The RBI bulletin reiterated that a pick-up in inflation seen in recent months was driven largely by supply shocks due to disruptions caused by the pandemic, including increases in margins and taxes.

India’s retail inflation rose less than expected in June but stayed above the central bank’s target band of 2%-6% for a second straight month.

The RBI said there were specific demand-supply mismatches, for instance in the case of protein-rich food items, edible oils and pulses, which were being addressed by specific supply-side measures.

“But more needs to be done. Elevated international commodity prices, especially of crude, are also imparting cost-push pressures. These factors should ease over the year as supply-side measures take effect,” the RBI said.

“Furthermore, a solid increase in aggregate demand is yet to take shape. Even with a 9.5% GDP growth in 2020/21, there will be substantial slack in the economy and demand pressures may take some more time to become evident.”

Read all the Latest News, Breaking News and Coronavirus News here.