India’s economy has recovered stronger than what was expected from the preliminary impact of the Covid-19 pandemic, Reserve Bank of India (RBI) governor Shaktikanta Das said on Thursday. However, he added it must be ensured that demand sustainability is monitored carefully after the end of the festive season.

He said there are negative risks to growth all over the world as well as India, while speaking at the annual day event of Foreign Exchange Dealers' Association of India (FEDAI).

“It can be noted that the Indian economy contracted by 23.9 per cent in the first quarter of the fiscal year, and the RBI expects the economy to shrink by 9.5 per cent in FY21. However, there has been recovery after the opening up of the lockdown restrictions, especially during the festive season,” Das said.

“After witnessing a sharp contraction in the economy by 23.9 per cent in Q1 and a multi-speed normalisation of activity in Q2, the Indian economy has exhibited stronger than expected pick-up in momentum of recovery,” he added.

“Even as growth outlook has improved, downside risks to growth continue due to recent surge in infections in parts of Europe and also in parts of India,'' he said.

“We need to be watchful about the sustainability of demand after the festivals and a possible reassessment of market expectations surrounding the vaccine,” the RBI governor said.

Das guaranteed the RBI’s commitment to make sure that an orderly conduct in the markets are maintained, while saying that regulatory reforms have moved the financial markets to the next trajectory amid Covid-19.

He also said that India will continue to approach capital account convertibility as a process, rather than as an event within a broad macroeconomic framework.