India Expected To Post Sharp Turnaround In 2021-22 Says RBI Governor

India is expected to post a sharp turnaround and resume its pre-COVID pre-slowdown trajectory by growing at 7.4% in 2021-22, noted the RBI Governor Shaktikanta Das today. Over the last three weeks, there have been a few data releases on domestic developments, but they are too disjointed to allow a comprehensive assessment of the state of the economy. By April 10, pre-monsoon kharif sowing had begun strongly, with acreage of paddy - the principal kharif crop - up by 37% in comparison with the last season. States such as West Bengal, Telangana, Odisha, Assam, Karnataka and Chhattisgarh are leading in sowing activity despite the lockdown. On April 15, the India Meteorological Department (IMD) forecast a normal south west monsoon for the 2020 season, with rainfall expected to be 100 per cent of the long period average. These early developments bode well for rural demand, supported as they are by accelerating fertiliser production up to February 2020. The robust growth of 21.3% in tractor sales up to February 2020 - as against a contraction of 0.5% in April-February last year - may provide an offset to farm labour shortages on account of the lockdown.

In other production sectors, the situation is more sombre. On April 9, the index of industrial production for February was released, showing that industrial output accelerated to its highest rate in seven months. The impact of COVID-19 is not yet captured in these prints. More tellingly, however, the revival in electricity generation - a coincident indicator of demand - that had commenced from January 2020, has been halted by a sharp fall in daily demand in the range of 25-30% after the lockdown announcement on March 25, 2020. Automobile production and sales, and port freight traffic declined sharply in March, as recently released data indicate. The manufacturing purchasing mangers' index (PMI) for March 2020, which was released on April 2, was the lowest in the last four months. Notably, suppliers' delivery time lengthened for the first time in five months, indicating supply disruptions. The April 6 release showed that the services PMI declined into contraction in March 2020, pulled down by a sharp downturn in export business, new domestic orders and employment.

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