Mumbai, NFAPost: According to the Reserve Bank of India (RBI) annual report, the Covid-19 second wave didn’t make the same impact like that of the first wave. RBI also pointed out that uncertainties can act as a deterrent in the short term for all economic activities.
The report states that economies across the world fell off a cliff in the second quarter of 2020, plunging to depths of contraction not fathomed before, but in the second half of the year, a robust recovery materialised faster than anticipated.
The annual report also states the country’s growth prospects now essentially depend on how fast India can arrest the second wave of Covid-19 infections.
“In India too, a quick turnaround lifted the economy from an unprecedented contraction in Q1 of 2020-21 (Q2 of 2020) to positive territory by Q3 (Q4 of 2020), aided by supportive financial conditions engendered by the Reserve Bank’s
liquidity measures.
RBI states that the near-term outlook is clouded, with an accentuation of downside risks and potential externalities of global spillovers, but over the course of the tumultuous year gone by, there have been learnings and adaptations
“The recovery of the economy from the Covid-19 will critically depend on the robust revival of private demand that may be led by the consumption in the short-run but will require acceleration of investment to sustain the recovery,” the central bank said in its annual report.
In its first wave, the pandemic’s fury was at its height in Q1:2020-21. The Indian economy contracted 24.4% y-o-y, the deepest downturn amongst G20 countries. In Q2, however, the contraction started to ease, reflecting vigorous
efforts to revive the economy, gradual relaxation of mobility restrictions, monetary and liquidity easing, and fiscal support.
By Q3, India had pulled out of a technical recession. In its February 2021 estimates, the National Statistical Office (NSO) estimated that real GDP for the full year would have shrunk by 8.0%, the first contraction since 1980-81 and the severest since national accounts have been compiled in India.
It also added that reform measures in various areas were likely to improve India’s growth potential on a sustainable basis.
For the year 2020, global output sank into its steepest contraction since the Great Depression at (-) 3.3%, with advanced countries’ GDP down by 4.7% and that of emerging and developing countries (EMDEs) by 2.2%. World trade volume of goods and services shrank by 8.5%. Consumer price inflation halved in advanced economies but remained broadly unchanged year on year in EMDEs, reflecting the firming up of non-fuel commodity prices.
On the investment, RBI report stated that India remained an attractive investment destination as net foreign direct investment (FDI) flows crossed a high during the year, even though there was a collapse in global FDI flows, and
especially those going to advanced economies.
“The digital sector turned out to be a large recipient of FDI into India with a few big-ticket deals. Foreign portfolio investment (FPI) flows also surged as investors’ risk appetite returned, with ultra-accommodative monetary policy stances of advanced economies’ central banks acting as the main push factor,” states the RBI report.
