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Optimism taking hold among households, businesses, markets: RBI

There is a restless urgency in the air in India to resume high growth, and incoming data point to even contact-intensive services such as personal care, recreation and hospitality gathering traction.

twitter-logoBusinessToday.In | March 19, 2021 | Updated 21:42 IST
Optimism taking hold among households, businesses, markets: RBI
The RBI bulletin called for speeding up the COVID-19 vaccination process in the country.

The Indian economy is recovering from the COVID-19 pandemic setback, with optimism returning to households, businesses, investors and markets, the Reserve Bank of India (RBI) said on Friday.

There is a restless urgency in the air in India to resume high growth, and incoming data point to even contact-intensive services such as personal care, recreation and hospitality gathering traction and pace even as agriculture crosses production highs in various crops and in horticulture, and manufacturing finally shrugs off the vice-like grip of contraction, the central bank said in its monthly bulletin.

"All around, optimism is taking hold, among households and businesses, investors and markets. It is also likely that India will decouple from other emerging economies for which rising financing costs and rising pile-ups of debt hamstring the recovery," it said.

While debt servicing for India pre-empted more than 25 per cent of budgetary revenues in 2020-21, the maturity of public debt is 11 years, reducing refinancing risk. Foreign holding of this debt is less than 2 per cent, which means low vulnerability to sudden outflows of capital because it has demonstrated capability to sell its debt in its own currency.

Also read: RBI to conduct simultaneous purchase and sale of govt bonds on March 25

"India has growth credibility - the average rate of interest on public debt is less than the growth rate of the economy. Even so, another outbreak, more lockdowns and restraints, will get unbearable in spite of learning from the initial experience of living with the virus," it added.

Even as vaccination criteria has been expanded from healthcare and frontline workers to senior citizens, the bulletin called for speeding up the process in the country.

As countries inoculate their populations, the global economy should regain lost momentum in Q2, RBI said. However, it warned that bond vigilantes could undermine the recovery, unsettle financial markets and trigger capital outflows from emerging markets. The central bank, it said, is striving to ensure an orderly evolution of the yield curve.

It also raised concerns on the rise in inflation. "Global oil markets are experiencing hardening of prices and production restraints. The ratcheting up of input prices to multi-year highs pose a dilemma - if they are passed on to consumers as pricing power returns to firms as aggregate demand picks up, there will be even higher inflation; if they are held back, profitability will be eroded as will gross valued added in the economy," it said.

While inflation is likely to ease after June in the current year, the bulletin said it will still be higher than in prints because of statistical base effects of high inflation a year ago.

Also read: RBI likely to delay monetary policy normalisation by 3 months amid rising COVID-19 cases

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