India’s GDP is within the striking distance of attaining positive growth, the Reserve Bank said observing that the letter "V" in the V-shaped recovery stands for vaccine.
The Indian government launched the world’s biggest vaccination drive on January 16 to protect people from COVID-19.
"What will 2021 look like? The shape of the recovery will be V-shaped after all and the ‘V’ stands for vaccine," said an article on the ‘state of economy’ in the RBI’s January Bulletin.
India has launched the biggest vaccination drive in the world, backed by its comparative advantage of having the largest vaccine manufacturing capacity in the world and a rich experience of mass inoculation drives against polio and measles.
"If successful, it will tilt the balance of risks upwards," said the authors who among others include RBI Deputy Governor Michael Debabrata Patra.
The RBI, however, said the views expressed in this article are those of the authors and do not necessarily represent the views of the central bank.
E-commerce and digital technologies will likely be the bright spots in India’s recovery in a world in which there will be rebounds for sure, but pre-pandemic levels of output and employment are a long way off, they said.
The article further said: "Recent shifts in the macroeconomic landscape have brightened the outlook, with GDP in striking distance of attaining positive territory and inflation easing closer to the target." India’s GDP is estimated to contract by a record 7.7 % during 2020-21 as the COVID-19 pandemic severely hit the key manufacturing and services segments, as per government projections released earlier this month.
The economy contracted by a massive 23.9 % in the first quarter and 7.5 % in the second quarter on account of the COVID-19 pandemic.
The article further said that in the first half of 2021-22, GDP growth will benefit from statistical support and is likely to be mostly consumption-driven.
With rabi sowing surpassing the normal acreage way before the end of the season, bumper agriculture production is expected in 2021.
"India being the global capital for vaccine manufacturing, pharmaceuticals exports are expected to receive a big impetus with the start of vaccination drives globally. Agricultural exports remain resilient and under the recent production linked (PLI) scheme, food processing industry has been accorded priority," it said.
Harnessing the synergies by transforming low-value semi-processed agri products through food processing would not only improve productivity but also boost India’s competitiveness, it added.
The article notes that slippage ratios have been falling and loan recoveries are improving even as provisioning coverage ratios have risen above 70 %. Capital infusion and innovative ways of dealing with loan delinquencies will occupy policy attention in order to ensure that finance greases the wheels of growth on a durable basis before the demographic dividend slips away.
"It will take years for the economy to mend and heal, but innovative approaches can convert the pandemic into opportunities. Will the Union Budget 2021-22 be the game-changer?," it said.
Finance Minister Nirmala Sitharaman is scheduled to present the Union Budget in Lok Sabha on February 1.
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