Reserve Bank of India (RBI) Governor Shaktikanta Das on December 4 said India’s Gross Domestic Product (GDP) is seen contracting by 7.5 percent in FY21 amid economic disruptions caused by the novel coronavirus pandemic. RBI had earlier projected a contraction of 9.5 percent.
However, Das observed that there were nascent signs of recovery seen in the second half of FY21. He expects Q3 FY21 growth at 0.1 percent and Q4 at 0.7 percent.
The Monetary Policy Committee (MPC) voted unanimously to keep the policy rate unchanged at 4 percent. The committee, citing high inflation constraints, also said it would maintain accommodative stance "as long as necessary". The reverse repo rate was kept unchanged at 3.35 percent.
The MPC is of the opinion that signs of recovery are far from being broad-based, Das added. Consumer Price Index (CPI) inflation was seen at 6.8 percent for Q3.
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India's real GDP for the September quarter contracted 7.5 percent year-on-year, on the back of the steep contraction in manufacturing, construction and services, according to data released by the National Statistical Office (NSO) on November 27 showed. This means, with two consecutive quarters of negative GDP growth, the Indian economy is in technical recession. India was in a recession last in 1979 when the real GDP fell 5.2 percent.
The economy had shrunk 23.9 percent during the April-June quarter, confirming fears of a crippling slide across several industries and services that were profusely bleeding through multiple deep cuts caused by the COVID-19-induced disruption.
Das noted that NSO's real GDP numbers for September quarter were shallower than what was projected by the central bank in October. In October, the RBI had said that it saw India’s GDP contracting by 9.5 percent in FY21. This forecast had come just days after the World Bank cut the country's GDP forecast for the financial year. The World Bank had said in its South Asia Economic Focus report that 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.
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Yet, data from the NSO also showed that the country has begun its gradual recovery following the nationwide lockdown in April, May and June which had flat-lined the economy.
