Beating predictions, economy pulling out of Covid's deep abyss: RBI

India's economy is pulling out of Covid-19's deep abyss at afaster pace than most predictions, Reserve Bank of India said in its monthlybulletin for December.

 "Since the assessment presented in the last month'sarticle, more evidence has been turned in to show that the Indian economy ispulling out of Covid-19's deep abyss and is reflating at a pace that beats mostpredictions," the bulletin said.

 "Although headwinds blow, steadfast efforts by allstakeholders could put India on a faster growth trajectory."

 The bulletin cited the pandemic- imposed retrenchment ofQ1FY21 turned out to be much shallower in Q2 and the economy is reflating at apace that beats most predictions.

 "Second, the update of the economic activity index(EAI) in the nowcasting assessment presented in last month's bulletin indicatesthat the real GDP growth is expected to break out into positive territory in Q3-- albeit, to a slender 0.1 per cent."

 "Third, the fourth bi-monthly resolution of themonetary policy committee (MPC) did maintain status quo on the policy rate andstance; but a powerful message was conveyed: growth projections -- theintermediate target under a flexible inflation targeting framework and the mostpotent communication tool -- were revised upwards by 200 basis points fromOctober and if they hold, the Indian economy will clock a growth rate of 14.2per cent in the first half of 2021-22 on top of 0.4 per cent in the second halfof 2020-21."

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 According to the bulletin, two important forces are'conspiring to bless' this turning of the page on the virus.

 "First, India is bending the Covid infection curve:since mid-September, barring localised surges, infections are slantingdownwards week after week, and the recovery rate is nudging 95 per cent,"

 A battery of vaccine candidates has successfully hit notonly trial status but also suitability for transportation, trials, usage inIndia, it said.

 "Second, it is now getting clearer that there is asystem to the fiscal stimulus, a 'method' if you will. Starting out withliquidity or guarantee and cash or kind support to the economy -- the need ofthe hour when the pandemic struck and displaced crores from their lives andlivelihoods -- it is transiting in a calibrated fashion to supportinginvestment and consumption demand," the bulletin said.

 "The fiscal measures have been sequenced in a designedshift in focus from consumption expenditure in Pradhan Mantri Garib KalyanPackage (PMGKP) to investment expenditure in Aatmanirbhar 2.0 and 3.0 (Chart3). On the whole, the above-the-line fiscal stimulus will likely boost growthby close to two per cent of GDP in 2020-21."

 "In other words, it is prudent to look beyond thevolatility inherent in high frequency indicators."

 Furthermore, it pointed out that companies are doing soalready -- an analysis of 12-months ahead forward earnings revealed animprovement in the outlook for a large number of companies.

 "Sectors such as auto and capital goods, which had beenhit hard by the lockdown are expecting a turnaround in forward earnings,"the bulletin said.

"Healthcare, information technology (IT) and fastmoving consumer goods (FMCG) companies are sighting stronger earningsoutlook."

"Moreover, intrinsic strength in the manufacturing andservices sectors is being built as debt servicing capacity is gettingreinforced and leverage is being brought down. India's farm sector is alsoforging ahead, backed by path-breaking marketing reforms."

(Source: IANS)