RBI Bulletin: ‘Tapering second wave, aggressive vaccination push brightened near term prospects for Indian economy’
The Reserve Bank of India (RBI), in its bulletin for the month of July released on Thursday, said that the near-term prospects for the Indian economy has been brightened by the reducing number of Covid-19 infections in the second wave along with the vaccination drive. “The tapering of the second wave, coupled with an aggressive vaccination push, has brightened near-term prospects for the Indian economy,” the RBI’s bulletin on state of the economy pointed out.
The RBI listed factors such as a rise in mobility and the increasing attendance in work places along with the increase in advance tax payments in June and in e-way bills, power consumption, increase in the volumes of payment modes and other such factors, which it called as “forerunner to the revival of business and consumer confidence.”
“All payment modes - cash withdrawals at teller machines; cards; unified payments interface; net banking; physical points of sale; and electronic funds transfer - have registered an uptick in volumes in June, forerunner to a revival of business and consumer confidence,” the RBI said in the bulletin.
However, a solid increase in aggregate demand is yet to take place despite the recovery of several high frequency indicators of activity, the RBI highlighted. “On the supply side, agricultural conditions are turning buoyant with the revival in the monsoon but the recovery of manufacturing and service sectors has been interrupted by the second wave,” the bank further said.
It also said that the increase in inflation is largely due to the adverse supply shocks due to the Covid-19 pandemic which would ease over the year as supply side measures take effect. Retail inflation in India rose above the RBI’s target of 2% to 6% for the second consecutive month in June. “There are also specific demand-supply mismatches as in the case of protein-rich food items, edible oils and pulses, which are being addressed by specific supply-side measures,” it said.
The central bank also noted that the economy is “struggling” to regain the momentum of recovery that started in the second half of 2020 -2021 but was interrupted by the second wave. “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,” it said. “Even with a 9.5 per cent GDP growth in 2021-22, there will be substantial slack in the economy and demand pressures may take some more time to become evident,” it further said.
Meanwhile, earlier in the day, RBI governor Shaktikanta Das said that there were no reasons for the bank to revise the GDP growth rate for FY22 downwards from the previous projection of 10.5 per cent, news agency ANI reported.
(With inputs from Reuters)