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RBI Monetary Policy: Central bank sees GDP contracting by 9.5% in FY21; may turn positive by Q4

RBI Monetary Policy: Following the MPC meeting in August, Governor Shaktikanta Das had projected a negative real GDP growth in FY21.

October 09, 2020 / 07:37 PM IST

Reserve Bank of India Governor Shaktikanta Das on October 9 said India’s Gross Domestic Product (GDP) is seen contracting by 9.5 percent in FY21 amid economic disruptions caused by the novel coronavirus pandemic. Das also said that GDP growth may turn positive by Q4 amid some economic recovery.

"If, however, the current momentum of upturn gains ground, a faster and stronger rebound is eminently feasible," Das noted.

Das announced that the manufacturing purchasing managers’ index (PMI) for September 2020 rose to 56.8 -- its highest mark since January 2012-- supported by acceleration in new orders and production. The services PMI for September at 49.8 remained in contraction, but has risen from 41.8 in August.

"These expectations are also reflected in our growth projections which suggest that GDP growth may break out of contraction and turn positive by Q4," Das said.

“Indian economy is entering into a decisive phase in fight against coronavirus,” Das said, adding that rural economy was looking resilient. Citing a survey carried out by RBI, Das said that households were hoping that inflation would subside.


Follow LIVE updates on the RBI Monetary Policy here

The MPC unanimously decided to keep the repo rate unchanged at 4 percent and maintain its accommodative stance in a bid to “revive growth in a durable basis”. Reverse repo rate remained unchanged at 3.35 percent. Marginal standing facility and bank rate also remained unchanged.

Following the MPC meeting in August, Das had projected a negative real GDP growth in FY21.

Follow LIVE updates of the RBI Monetary Policy announcements here

On October 8, the World Bank cut India’s GDP forecast for FY21. India’s GDP for the fiscal started March is expected to contract by 9.6 percent, compared to June estimates of 4.5 percent contraction, World Bank said in its South Asia Economic Focus report.

The Indian economy shrank 23.9 percent during the April-June quarter this year, confirming fears of a crippling slide across several industries and services that are profusely bleeding through multiple deep cuts caused by COVID-19-induced disruptions.

National income accounts data released on August 31 showed that India's "real" or inflation-adjusted GDP contracted 22.6 percent, the sharpest drop in 41 years, compared to a growth of 8.1 percent in the same quarter last year.

If GDP growth falls again in the July-September quarter, India would technically be in a recession, an economic state characterised by at least two successive quarters of contraction, underscoring the pandemic's bludgeoning impact on a country that until not-too-long-ago was the world's fastest growing major economy.

India was in a recession last in 1979 when the real GDP fell 5.2 percent.

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Moneycontrol News
first published: Oct 9, 2020 10:20 am
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