India needs to speed up vaccination drive: Reserve Bank of India article

Amid ominous signs of a possible second wave of COVID-19, the country needs to speed up vaccination drive, according to an RBI article.

Observing that the vaccinations have moved beyond health workers to senior citizens, but at 3.3 crore as on March 16, the entire process needs to be speeded up, said the article on the 'State of Economy' written by RBI Deputy Governor M D Patra and other officials.

"India is poised on the cusp of two tipping points. First, there are ominous signs that infections are rising. A second wave? Time will tell," the article observed.

India has become the pharmacy of the world with 60 per cent of global manufacturing capacity, the article said, adding "commencing on January 20, more than 70 countries have received vaccines made in India."

The article also noted that inflation has witnessed upside pressures.

The central bank said the views expressed in the article are those of the authors and do not necessarily represent the views of the Reserve Bank of India.

In fact, excluding vegetables, headline CPI inflation has moved in a tight range of 5.8-6.4 per cent from June, testing the upper tolerance band of the inflation target.

Global oil markets are experiencing hardening of prices and production restraints.

The ratcheting up of input prices to multi-year highs pose a dilemma if they are passed on to consumers as pricing power returns to firms as aggregate demand picks up, there will be even higher inflation; if they are held back, profitability will be eroded as will gross valued added in the economy, it said.

"India is in a strange place rising prices amidst plenty. Surely, there is a way around it..," it said.

The authors feel that in 2021, inflation is likely to ease after June, but it will be higher than in prints because of statistical base effects of high inflation a year ago.

"There is a restless urgency in the air in India to resume high growth, and incoming data point to even contact-intensive services such as personal care, recreation and hospitality gathering traction and pace even as agriculture crosses production highs in various crops and in horticulture, and manufacturing finally shrugs off the vice-like grip of contraction," the article said.

It further said all around, optimism is taking hold, among households and businesses, investors and markets. It is also likely that India will decouple from other emerging economies for which rising financing costs and rising pile-ups of debt hamstring the recovery.

"In the case of India, debt servicing did preempt more than 25 per cent of budgetary revenues in 2020-21, but there are saving graces: the maturity of public debt is 11 years, reducing refinancing risk," it said.

Foreign holding of this debt is less than 2 per cent, which means low vulnerability to sudden outflows of capital because it has demonstrated capability to sell its debt in its own currency.

Also, India has growth credibility the average rate of interest on public debt is less than the growth rate of the economy.

"Even so, another outbreak, more lockdowns and restraints, will get unbearable in spite of learning from the initial experience of living with the virus," said the article published in the March 2021 bulletin of RBI.

The article also said there is much sense in what the Reserve Bank is doing in striving to ensure an orderly evolution of the yield curve. But it takes two to tango and forestall a tandav.