RBI: RECOVERY GATHERING PACE, MORE ROOM LIKELY FOR FISCAL SUPPORT

India’s economic recovery is strengthening and policymakers may soon have more room for steps to support the revival, an article published in the Reserve Bank of India’s January bulletin said, citing the improvement in high-frequency data.

“Recent shifts in the macroeconomic landscape have brightened the outlook, with GDP [gross domestic product] in striking distance of attaining positive territory and inflation easing closer to the target. If these movements sustain, policy space could open up to further support the recovery,” it said.

The central bank cut policy rates last year to support the recovery ,but has left rates unchanged in the recent months due to rising inflation.

The article said the number of e-way bills issued in December 2020 was the highest ever, “suggesting that the recovery is no longer aloft on the fleeting tailwinds of festival spending but is rising Phoenixlike on the wings of an intrinsic momentum”.

The Indian economy shrank 23.9% in the first quarter and 7.5% in the second quarter on account of the Covid-19 pandemic. The RBI expects the economy to contract by 7.5% in the current fiscal to March.

An early revival in investments will be critical to secure a durable turnaround, it said.→p12