Indian Economy: RBI Predicts V-Shaped Recovery, Says Growth Momentum May Ease Policy Action

Predicting a V-shaped economic recovery, the central bank of India has said that if growth momentum continues and inflation stays mild, then there will be a room for policy action to support growth.

This observation came in the State of the Economy report released by the Reserve Bank of India (RBI), reported The Times of India.

This comes at a time when the top bank started draining out the surplus liquidity in the money markets, to stave off an economic crisis as a result of COVID-19 pandemic.

"Recent shifts in the macroeconomic landscape have brightened the outlook, with GDP 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," RBI said in the report.

The consumer confidence is expected to increase from January 2021, peak in July 2021 and continue till September, said the report.

The report further added, "Going forward, two positive features are going to shape up the fiscal landscape in H2. First, the general government gross fiscal deficit to GDP ratio is likely to moderate to 10.4 per cent. This development will be revenue-driven as the war effort of H2 bears fruit and receipts return to positive territory. Second, the quality of the fiscal deficit is also likely to be better in H2."

The central bank also sees an upturn in non-oil exports due to a rise in shipments of drugs and pharmaceuticals, iron ore and Agri products.

The bank predicted that the production linked incentive (PLI) scheme introduced for bulk drugs and medical devices is performing well and is expected to support pharmaceutical and medical exports going forward.

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