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regular-article-logo Monday, 25 November 2024

RBI sees third quarter revival for Indian economy

The central bank flagged the unrelenting pressure of inflation as a downside risk

Our Special Correspondent Mumbai Published 12.11.20, 01:38 AM
In its baseline forecast made at its monetary policy meeting on October 9, the RBI had said real GDP would contract 9.5 per cent in 2020-21 “with risks tilted to the downside”.

In its baseline forecast made at its monetary policy meeting on October 9, the RBI had said real GDP would contract 9.5 per cent in 2020-21 “with risks tilted to the downside”. File picture

The Reserve Bank of India believes that the Indian economy will bounce back in the third quarter (October-December) and show positive growth if the upturn in economic activity in October is sustained over the next two months.

The latest forecast suggests that the central bank has started to cautiously signal that the Indian economy is preparing to heave itself out of the gloom and doom scenario painted by a variety of economists and global institutions such as the IMF and the World Bank which have almost universally projected an almost 10 per cent contraction this fiscal.

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In its baseline forecast made at its monetary policy meeting on October 9, the RBI had said real GDP would contract 9.5 per cent in 2020-21 “with risks tilted to the downside”.

In its semi-annual monetary policy report, the central bank had forecast a 5.6 per cent contraction in Q3 and a 0.5 per cent growth in Q4.

Now, the RBI believes that the turnaround may happen sooner — in the third quarter rather than the fourth.

“With the momentum of September having been sustained, there is optimism that the revival of economic activity is stronger than the mere satiation of pent-up demand released by unlocks and the rebuilding of inventories.”

“If this upturn is sustained in the ensuing two months, there is a strong likelihood that the Indian economy will break out of the contraction of the past six months gone by and return to positive growth in the third quarter of 2020-21,” it added

It, however, flagged the unrelenting pressure of inflation as a downside risk.

Another risk comes from the global economy which could feel the adverse impact of a second wave of Covid-19.

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