Economic recovery gaining strength as India emerges out of 3rd wave : RBI

The Indian economy is gaining momentum as it comes out of the relatively less virulent third Covid wave, which is in divergence with the global economic scenario, the Reserve Bank of India (RBI) said in its state of the economy report.

“In India, the recovery in economic activity is gaining strength and traction as it emerges from the third wave. Both manufacturing and services remain in expansion with optimism on demand parameters and uptick in consumer and business confidence,” the central bank said.

According to the report, this time better planning and strategy as well as better management of supply chain logistics, and accelerated digitisation helped companies mitigate the impact of the third wave of the pandemic.

Also, unlike the last two waves, the consumer and business confidence was far more resilient, aided by accelerated pace of vaccination, and better prospects on the general economic situation, household incomes, and spending.

Further, in February, mobility indicators recovered to pre-pandemic levels and unemployment rate dropped, with companies drawing up massive hiring plans, signs that the Indian economy is coming out of the third wave. Robust goods and service tax (GST) collection, toll collections and e-way bill generations are all pointing towards a revival.

The farm sector remains upbeat on the back of higher minimum support prices announced by the government. The manufacturing activity remains in expansion with optimism on demand parameters such as production volumes, new orders and job landscape during Q4FY22. Firms expect further improvement in capacity utilisation and overall financial situation, the report stated.

“Firms in the services sector remained optimistic on demand conditions, while their expectations on overall business situation, turnover and employment conditions have moderated marginally”, the report said.

Against market expectation, in the recently concluded monetary policy committee of RBI kept rates unchanged and continued with the accommodative stance to support growth. Also, it was very optimistic in its inflation projections, as it pegged inflation at 4.5 per cent for the next fiscal year, despite high crude oil prices, which has prompted many global central banks to turn hawkish.

“With inflation projected to stay within the tolerance band in 2022-23, the MPC decided to pause and persevere with an accommodative policy stance. Governor Shaktikanta Das emphasised that monetary policy would continue in its endeavour to achieve price stability, while ensuring a strong and sustained economic recovery”, the state of the economy report stated.

The headline inflation for January came in at 6 per cent as against 5.7 per cent in December. This was because of the unfavourable base effect, the report said.

Commenting on the Union Budget, the report says, the budget has set the tone for a durable and broad-based revival. The renewed emphasis on public investment through infrastructure development is expected to crowd-in private investment and strengthen job creation and demand in 2022-23.

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