Money & Banking

RBI expects real GDP to fall by 9.5%

Our Bureau. Mumbai | Updated on October 09, 2020 Published on October 09, 2020

India’s recovery is likely to be a three-speed recovery predominantly, with individual sectors showing varying paces depending on sector-specific realities, according to Reserve Bank of India (RBI) Governor Shaktikanta Das.

For the year 2020-21 as a whole, the central bank expects real GDP to decline by 9.5 per cent, with risks tilted to the downside: (-)9.8 per cent in Q2 (July-September) 2020-21; (-)5.6 per cent in Q3 (October-December); and 0.5 per cent in Q4 (January-March 2021).

Real GDP growth for Q1 (April-June) 2021-22 will see a rebound, with the RBI placing it at 20.6 per cent.

“There is currently an animated debate about the shape of the recovery. Will it be V, U, L, or W? More recently, there has also been talk of a K-shaped recovery.

“In my view, it is likely to predominantly be a three-speed recovery, with individual sectors showing varying paces, depending on sector-specific realities,” said the Governor in his bi-monthly monetary policy address.

Das observed that the sectors that would ‘open their accounts’ the earliest are expected to be those that have shown resilience in the face of the pandemic and are also labour-intensive.

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 in this category.

Strike form and slog overs

“The second category of sectors to ‘strike form’ would comprise sectors where activity is normalising gradually.

“The third category of sectors would include the ones that face the ‘slog overs’, but they can rescue the innings. These are sectors that are most severely affected by social distancing and are contact-intensive,” explained Das.

The Governor felt that by all indications, the deep contractions of Q1 2020-21 are behind us; silver linings are visible in the flattening of the active case load curve across the country.

Barring the incidence of a second wave, India stands poised to shrug off the deathly grip of the virus and renew its tryst with its pre-Covid growth trajectory, he added. The RBI projected the CPI (consumer price index) inflation at 6.8 per cent for Q2 (July-September) 2020-21; 5.4-4.5 per cent for H2 (October 2020 till March 2021) 2020-21; and 4.3 per cent for Q1 (April-June) 2021-22 with risks broadly balanced.

“Turning to the outlook for inflation, kharif sowing portends well for food prices... International crude oil prices have traded with a softening bias in September on a weak demand outlook, but domestic pump prices may remain elevated in the absence of any roll back of taxes.

“...Covid-19-related supply disruptions, including labour shortages and high transportation costs, could continue to impose cost-push pressures, but these risks are getting mitigated by progressive easing of lockdowns and removal of restrictions on inter-state movements,” as per the monetary policy statement.

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

Published on October 09, 2020
This article is closed for comments.
Please Email the Editor