The Reserve Bank of India on Thursday said that the country’s economy was recovering at a faster pace than expected, and that the growth rate may enter the positive territory in the third quarter (October-December). In its monthly bulletin for December, the central bank has however flagged the need to check the rising inflation rate so that it does not affect growth.
India’s Gross Domestic Product growth rate contracted by 7.5% in the second quarter (July-September), after shrinking by an unprecedented 23.9% in the first three month period (April-June) of this financial year. Meanwhile consumer inflation, an indicator of price rise in retail markets, stood at 6.93%, well above the RBI’s mandated range of 4% to 6%.
In the bulletin released on Thursday, the central bank said that the National Statistical Office’s end-November release showed that effect of the coronavirus pandemic on the economy in second quarter was much lesser than the first.
“Update of the economic activity index in the nowcasting assessment presented in last month’s Bulletin indicates that real GDP growth is expected to break out into positive territory in Q3 – albeit, to a slender 0.1%,” RBI said.
RBI cited the bending of the Covid-19 infection curve since mid-September and the fiscal measures undertaken by the Centre, as the reasons behind the potential uptick in the growth trajectory.
“Sectors such as auto and capital goods, which had been hit hard by the lockdown are expecting a turnaround in forward earnings,” the bulletin said. “Healthcare, information technology and
fast moving consumer goods companies are sighting stronger earnings outlook.”
The central bank however maintained that a rise in international commodity prices and raising of margins by companies to recoup losses were taking a toll on the inflation front. The bulletin said that efforts needed to be “redoubled to excoriate the ‘worm in the apple’ – inflation” before it affected the impulses of growth.
The RBI last month, began the practice of releasing a monthly bulletin, highlighting various facets of the economy. It uses the “nowcasting” method, a prediction of the present or the very near future of the state of the economy, to calculate growth rate and other indicators.