Economy

Economy likely to rebound strongly in 2021-22: RBI

Our Bureau Mumbai | Updated on April 07, 2021

Rapid vaccination drive, large pent-up demand, investment enhancing measures, and better external demand provide an upside to the baseline growth path.

Domestic economic activity is widely expected to rebound strongly in 2021-22, according to the Reserve Bank of India’s monetary policy report.

Taking into account the baseline assumptions, the survey of profession forecasters indicators, and model forecasts, real GDP growth is projected to pick up from (-) 8.0 per cent in 2020-21 to 10.5 per cent (same as the projection made in the previous bi-monthly policy review) in 2021-22.

The GDP growth will have a quarterly path of 26.2 per cent in Q1, 8.3 per cent in Q2, 5.4 per cent in Q3, and 6.2 per cent in Q4 – with risks evenly balanced.

Rapid vaccination drive, large pent-up demand, investment enhancing measures by the government and better external demand provide an upside to the baseline growth path.

However, the surge in infections, new mutants, and deviation of the south-west monsoon from the baseline assumption of a normal monsoon, higher crude oil and non-oil commodity prices and global financial market volatility impart downside risks to the baseline growth path.

For 2022-23, assuming a normal monsoon and no major exogenous or policy shocks, the structural model estimates indicate real GDP growth at 6.8 per cent, with quarterly growth rates in the range of 6.2-7.3 per cent, the report said.

CPI (consumer price index) inflation is projected to average 5.0 per cent in Q4:2020-21, 5.2 per cent in Q1:2021-22 and Q2, 4.4 per cent in Q3, and 5.1 per cent in Q4, with risks broadly balanced

Lingering supply chain disruptions, rising global crude oil prices and stronger pass-through of input costs could push headline inflation above the baseline.

There is also the probability of softer international crude oil prices on the back of a weaker than anticipated global demand, bountiful foodgrains production and effective supply management coming together to ease inflation more than expected.

The report observed that evolving Covid-19 trajectory and progress on vaccination remain the key drivers of economic activity and inflation, globally and in India.

Published on April 07, 2021

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