COVID-19 pandemic has drastically altered India's growth outlook: RBI

The Reserve Bank of India, in its Monetary Policy Report, has sharply altered the outlook for India's economic recovery underlining the pandemic's deepening impact on South Asia's engine of growth. Prior to the outbreak of COVID-19, the outlook for growth for 2020-21 was looking up owing to bumper rabi harvest and higher food prices during 2019-20, improved transmission of past reductions in the policy rate to bank lending rates and reductions in the goods and services tax (GST) rates. The COVID-19 pandemic has drastically altered this outlook.

Optimism in the manufacturing sector for the quarter ahead had improved in the January-March 2020 round of the Reserve Bank's industrial outlook survey, reflecting expectations of higher production, order books, capacity utilisation, employment conditions, exports and overall business situation, In view of the intensification of COVID-19, a quick survey with select parameters was specially conducted during March 18-20 to capture business sentiments. From the limited responses received, a considerable worsening of the key demand indicators is seen in the outlook for Q1:2020-21.

The global economy is expected to slump into recession in 2020, as post-COVID projections indicate. The sharp reduction in international crude oil prices, if sustained, could improve the country's terms of trade, but the gain from this channel is not expected to offset the drag from the shutdown and loss of external demand. India has not been spared from the exponential spread of COVID-19 and by April 7, more than 4,700 cases had been reported. While efforts are being mounted on a war footing to arrest its spread, COVID-19 would impact economic activity in India directly through domestic lockdown. Second round effects would operate through a severe slowdown in global trade and growth. More immediately, spillovers are being transmitted through finance and confidence channels to domestic financial markets. These effects and their interactions would inevitably accentuate the growth slowdown, which started in Q1:2018-19 and continued through H2:2019-20.

Powered by Capital Market - Live News