Manufacturing sector will need continued policy support: RBI article

The manufacturing sector will need continued policy support for smoother and faster recovery to attain the long-term trend path, according to a Reserve Bank article.

Although the sector may soon attain its pre-COVID level, the process of attaining the long-term trend levels may take some time, said the article 'Impact of COVID-19 on Sentiments of Indian Manufacturers' published in RBI bulletin.

It said that just when the manufacturers' outlook started looking up, the COVID-19-induced lockdown measures slowed down the revival process.

The pandemic affected the producers' sentiments negatively by bringing down various parameters to historic lows, the article said.

"...although the major macroeconomic variables are supposed to achieve their pre-COVID trend in near-term with improvement in demand conditions, they are expected to take time to return to their long-term trend path," it said.

It further said the accelerated rollout of vaccines, 2022-23 Budget proposals and other reforms are expected to provide a strong impetus for revival of the economy and will facilitate regaining of the growth potential over the medium-term.

However, it added, "continued policy support in future may make the recovery smoother and faster."

The RBI said the views expressed in the article are those of the authors only and do not necessarily represent the views of the central bank. The article lists the key findings of the industrial outlook survey (IOS) for the manufacturing sector conducted during 2019-21.

The sentiments of the respondents reflected that the slowdown in growth momentum was mainly due to weakening of demand for three consecutive years beginning 2017-18, it said.

The IOS conducted by the Reserve Bank plays an important role in supporting monetary policy decision. Being a forward-looking survey, IOS captures the sentiments of enterprises engaged in manufacturing activities. The perception includes the assessment of the current quarter and expectations for next quarter.

As per the article, the first and second waves of the pandemic slowed down the economic activity, and the perception of the manufacturers was impacted adversely. The conditions improved with gradual resumption of normalcy.

Concurrently, the subsequent waves of the pandemic and the reimposition of virus containment measures may dampen the manufacturers' sentiments and slow down the recovery process.

However, the accelerated rollout of vaccines, a growth-oriented Budget with fiscal and other reforms and enhanced infrastructure spending and sector-specific support, investment-oriented stimulus under various tranches of Aatmanirbhar Bharat, easy financial conditions, are expected to provide a strong impetus for revival of the economy, it said.

Continued policy support in future may make the recovery smoother and faster, the article said.