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Economic recovery in FY22 to be V (vaccine)-shaped: RBI

RBI paper says India must look for ways in which cash sitting idly in balance sheets of corporations and banks and reverse repo balances with the RBI finds its way into credit to productive sectors before it imposes a persistent deflationary weight on real activity

twitter-logoBusinessToday.In | January 21, 2021 | Updated 16:14 IST
Economic recovery in FY22 to be V (vaccine)-shaped: RBI
RBI believes e-commerce and digital technologies will be the bright spots in India's road to recovery

The Reserve Bank of India (RBI), in its 'State of the Economy 2020' report, has said the shape of the economic recovery in 2021-22 will be v-shaped -- and the 'v' in it stands for "vaccine".

"2020 turned out to be a year in which everything changed. The year 2021 has commenced with countries across the world in a massive vaccination drive. In India, recent shifts in the macroeconomic landscape have brightened the outlook, with GDP in striking distance of attaining positive territory and inflation easing closer to the target," the RBI bulletin said.

Joining other nations, India launched the biggest vaccination drive in the world on January 16, which is backed by its comparative advantage of having the largest vaccine manufacturing capacity in the world and a rich experience of mass inoculation drives against polio and measles.

The RBI says "if successful, it will tilt the balance of risks upwards". The central bank believes e-commerce and digital technologies will be the bright spots in India's road to recovery in a world in which there will be rebounds but pre-pandemic levels of output and employment are a long way off.

"Japanification stares at much of the advanced world, while for emerging economies, the potential output will be a lot flatter," says the apex bank.

Financial markets remain ebullient, with emerging market economies receiving strong portfolio inflows and India on track to receive record annual inflows of foreign direct investment (FDI), said the RBI.

"Merchandise trade has rebounded in early January, attesting to the slow healing of domestic demand and the unlocking of export energies. Current account surpluses are ebbing as domestic activity regains vigour. Foreign investment flows are already scenting the imminent upturn," the RBI report says.

The RBI says in H1 of FY22, GDP growth will benefit from statistical support and is likely to be mostly "consumption-driven". As rabi sowing surpasses the normal acreage in advance, bumper agriculture production is expected in 2021. Notably, agriculture was the only bright spot in the economy in 2020, which was marred by the coronavirus crisis.

Being the global capital for vaccine manufacturing, Indian pharma exports are also expected to receive a big impetus as vaccination drives start globally. The RBI says India must look for ways in which cash sitting idly in balance sheets of corporations and banks and reverse repo balances with the RBI finds its way into credit to productive sectors before it imposes a persistent deflationary weight on real activity.

Also read: Small finance banks' branches concentrated in urban, semi-urban areas; NPA ratio moderate: RBI paper

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