India's economy inflation and growth to take a hit in the coming year, says RBI governor

RBI Governor Shaktikanta Das lays out his predictions for the Indian economy over the next year BCCL
  • Reserve Bank of India (RBI) governor Shaktikanta Das described the impact of the coronavirus lockdown on the Indian economy's inflation and growth in a press conference today, May 22.
  • "We may stumble and fall, but shall rise again," he said quoting Mahatma Gandhi.
  • Here are the highlights of his expectations.
Reserve Bank of India (RBI) governor Shaktikanta Das announced a slew of measures to help the Indian economy get back on its feet. Quoting Mahatma Gandhi, he said, “We may stumble and fall, but shall rise again.”

Das disclosed that due to data from the National Statistical Office (NSO) being incomplete, the outlook on inflation is a little clouded as of now. “As and when more data are available, it should be possible to estimate the path of inflation with greater certainty,” he said explaining why the Monetary Policy Committee’s (MPC) forward guidance on inflation is directional rather than in terms of levels.

Here are the highlights of how he sees the coming financial year play out in terms of inflation, growth, and macroeconomic factors.

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On inflation:
  • Headline inflation may remain firm in the first half of FY21 but should ease in the second half, aided also by favourable base effects. By Q3 and Q4 of FY21, it is expected to fall below the target of 4%.
  • Inflation outlook is highly uncertain. Supply shock to food prices in April may show persistence over the next few months. Among the pressure points, the elevated level of pulses inflation is worrisome
  • Immediate step-up of open market sales and Public Distribution System (PDS)-offtake by the Food Corporation of India (FCI) to offload some part of excess stocks can cool down cereal prices and also create room for rabi procurement.
  • Given the current global demand-supply balance, international crude oil prices, metals and industrial raw material prices are likely to remain soft. This would ease input costs for domestic firms.
Growth outlook:

  • GDP growth in FY21 is estimated to remain in negative territory, with some pick-up in growth impulses from the second half of the year.
  • The combined impact of demand compression and supply disruption will depress economic activity in the first half of the year. It is expected that the combination of fiscal, monetary and administrative measures being currently undertaken would create conditions for a gradual revival in activity in the second half of 2020-21.
  • Downside risks to this assessment are significant and contingent upon the containment of the pandemic and quick phasing out of social distancing/lockdowns.
“The end-May 2020 release of NSO on national income should provide greater clarity, enabling more specific projections of GDP growth in terms of both magnitude and direction,” Das added.

SEE ALSO: No EMI payments for six months as RBI extends moratorium on loans repayments till August 31 Reserve Bank of India cuts interest rates to the lowest in over 2 decades⁠ as the central bank expects the GDP to contract this financial year
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