The Reserve Bank of India (RBI) Governor Shaktikanta Das today projected better days for the economy that saw contraction in the first quarter of 2020-21. While high inflation was a major stumbling block for the monetary policy committee (MPC) to reduce the repo rate, the Governor expects retail inflation or CPI to come closer to the targeted level by the fourth quarter. The RBI Governor said that the mood of the nation has shifted from fear and despair to confidence and hope. "Today, there is a turn in the wind, which suggests that it is not imprudent to dream of a brighter tomorrow even in the bleakest of times," said RBI Governor.
GDP to turn positive by fourth quarter
The RBI's growth projections suggest that GDP will come out of contraction and turn positive by the fourth quarter (Jan-March) of 2020-21. The GDP had contracted by 23 per cent in the first quarter. The RBI estimates the GDP to decline by 9.5 per cent in the current fiscal. "If, however, the current momentum of upturn gains ground, a faster and stronger rebound is eminently feasible," says Governor Das.
Sectors on the recovery path
Agriculture and allied activities; fast moving consumer goods; two wheelers, passenger vehicles and tractors; drugs and pharmaceuticals; and electricity generation, especially renewables, are some of the sectors that are on a recovery path faster than the others.
Inflation to ease closer to targeted level by fourth quarter
The RBI's projections indicate that inflation would ease closer to the target by the fourth quarter of 2020-21. The current CPI or retail inflation is above 6 per cent. The RBI's monetary policy committee has a mandate to keep inflation at 4 per cent with plus and minus 2 per cent. "Our analysis suggests that supply disruptions and associated margins/mark-ups are the major factors driving up inflation. As supply chains are restored, these wedges should dissipate," says Governor Das. The RBI's calculation suggest that the inflation will remain elevated in the September print, but ease gradually towards the target over the third and fourth quarter.
Smooth government borrowings despite higher target
The first half of the current year has seen RBI seamlessly managing the government borrowing programme. "The weighted average cost of borrowings by the central government during the first half of 2020-21 at 5.82 per cent is the lowest in the last 16 years," says Governor Das. The RBI has assured that the borrowing programme of the centre and states for rest of 2020-21 will be completed in a non-disruptive manner without compromising on price and financial stability.