Economy set to recover on low interest rates, softening inflation: RBI bulletin – The Hindu BusinessLine

Clipped from: https://www.thehindubusinessline.com/money-and-banking/economy-set-to-recover-on-low-interest-rates-softening-inflation-rbi-bulletin/article37508633.ece?homepage=true

Authors see several positives on the Covid-19 front, in terms of reduced infections and faster vaccinations

The Indian economy is poised to regain the ground lost to the pandemic and re-emerge as among the fastest growing countries in the world, supported by the decadal low interest rates, softening inflation and a modest current account surplus, according to a article in the Reserve Bank of India’s latest monthly bulletin.

The authors, however, underscored that the global economic outlook remains shrouded in uncertainty, with headwinds from multiple fronts corralling together at a time when many economies are still struggling and are at nascent stage of their recovery.

They cautioned that growing likelihood of policy normalisation by major central banks to quell fast rising inflation may tighten financial conditions and stutter the ongoing growth impulses.

Vaccination drive

The authors noted that domestically, there have been several positives on the Covid-19 front, in terms of reduced infections and faster vaccinations.

Mobility is rapidly improving; the job market is recouping and overall economic activity is on the cusp of a strengthening revival. Overall monetary and credit conditions stay conducive for a durable economic recovery to take root.

The authors assessed that in India, the recovery gained strength, though the speed and pace of improvement remains uneven across different sectors of the economy.

“Indicators of aggregate demand posit a brighter near-term outlook than before. On the supply side, the Rabi season has set in early on a positive note on the back of a record Kharif harvest and manufacturing is showing improvement in overall operating conditions, while services are in strong expansion mode. “Overall monetary and credit conditions stay conducive for a durable economic recovery to take root,” the article said.

The authors opined that the economy is gradually healing amidst an uncertain and volatile global environment, battered by supply chain and logistics disruptions, inflation shocks and geopolitical tensions.

“Incoming high frequency indicators show that the recovery is taking hold in several spheres, though some others are still lagging behind.

“With the gradual uptick in confidence, mobility indicators have edged up,” the article said.

Job market

The job market is exhibiting signs of ebullience on the back of uptick in business optimism and faster pace of vaccination, it added.

India’s merchandise exports have staged a smart turnaround, with surging double-digit growth for the eighth consecutive month in a row

Collections under the Goods and Services Tax (GST) have marked their second highest level in October since its introduction on the back of better tax administration and ongoing economic recovery.

Referring to the issuance of e-way bills being the highest in their history, the authors felt that this bodes well for GST collections going forward.

After exhibiting moderation in the month of September 2021, power consumption has registered an uptick despite supply side constraints.

“The headline manufacturing purchasing managers’ index (PMI) recorded expansion for the fourth consecutive month in October with anticipation of an improvement in demand conditions.

“The services sector is convalescing with the headline PMI rising to a decadal high in the same month,” the authors said.

Festival boost

With attractive offers by developers amidst the festival season, property registrations have also surged.

Overall, the growth momentum in digital transactions over the past few months indicates that the economy is gradually shaking off the shackles of the second wave of the pandemic, the authors said.

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