Hopes on Budget 2021-22 to accelerate economic growth
The Reserve Bank of India (RBI) has kept benchmark interest rate unchanged at 4% while maintaining an accommodative stance, implying rate cuts in the future if need arises to support the COVID-19 pandemic-hit economy that has been in negative growth.
The reverse repo rate will also continue to earn 3.35% banks for their deposits kept with RBI, said Governor Shaktikanta Das on 5 Feb 2021 following the central bank’s Monetary Policy Committee (MPC) decision.
The central bank had slashed the repo rate by 115 basis points since late March 2020 to support economic growth that remains pressured by the global pandemic.
The global economic recovery slackened in Q4 (October-December) of 2020 relative to Q3 (July-September) as several countries battle second waves of COVID-19 infections, including more virulent strains. With massive vaccination drives underway, risks to the recovery may abate and economic activity is expected to gain momentum in the second half of 2021.
Rural demand is likely to remain resilient on good prospects of agriculture, said RBI in its economic outlook.
Urban demand and demand for contact-intensive services is expected to strengthen with the substantial fall in COVID-19 cases and the spread of vaccination.
Consumer confidence is reviving and business expectations of manufacturing, services and infrastructure remain upbeat.
The fiscal stimulus under AtmaNirbhar 2.0 and 3.0 schemes of government will likely accelerate public investment, although private investment remains sluggish amidst still low capacity utilisation.
The Union Budget 2021-22, with its thrust on sectors such as health and well-being, infrastructure, innovation and research, among others, should help accelerate the growth momentum.
Taking these factors into consideration, real GDP growth is projected at 10.5% in 2021-22 – in the range of 26.2 to 8.3% in H1 and 6.0% in Q3.
The projected increase in capital expenditure augurs well for capacity creation thereby improving the prospects for growth and building credibility around the quality of expenditure.
The recovery, however, is still to gather firm traction and hence continued policy support is crucial, said RBI. #economy #investment #trade #exports #projects #manufacturing /fiinews.com
