Second wave hit demand more than supply: RBI

MUMBAI: The Reserve bank of India (RBI) said on Monday the second wave of the Covid-19 pandemic in India has had a bigger impact on aggregate demand than on aggregate supply, and it believes the economic slowdown was not as severe as a year ago.

“The biggest toll of the second wave is in terms of a demand shock - loss of mobility, discretionary spending and employment, besides inventory accumulation, while the aggregate supply is less impacted,” the RBI said in its monthly bulletin.

“The resurgence of Covid-19 has dented but not debilitated economic activity,” it added.

The central bank said although it is “extremely tentative” at this stage, it believes that the loss of momentum is not as severe as at this time a year ago.

“Evidently, the localised nature of lockdowns, better adaptation of people to work from home protocols, online delivery models, e-commerce and digital payments are at work,” it said.

Earlier in the month, the RBI unveiled fresh measures to help lenders tide over mounting bad loans and give some borrowers more time to repay their debts. The RBI said despite seasonally adjusted month-on-month momentum in industrial production being positive for the fourth consecutive month, anecdotal evidence points to feedback loops from the demand contraction seeping through into curtailments of output in the months ahead unless infections ebb.