India Poised For Swift Economic Recovery; Festive Season Warrants Caution: RBI

The RBI said that the country is well-placed on the path to swift recovery with growth impulses visibly transmitted to all sectors of the economy.

India Poised For Swift Economic Recovery; Festive Season Warrants Caution: RBI

RBI maintained status quo on the interest rates in its October monetary policy.

New Delhi: The Reserve Bank of India (RBI) on Monday said that the country is well-placed on the path to swift recovery with growth impulses visibly transmitted to all sectors of the economy. In its economic review for the month of September, the central bank said, "Strategic reforms undertaken so far along with new milestones in vaccination drive have enabled the economy to navigate the ravaging waves of the Covid-19 pandemic." 

The central bank also said, "Sustained robust growth in agriculture, strong rebound in manufacturing and industry, resumption of services activity, buoyant revenue collections and improved fiscal position bear testimony to resilience of the Indian economy." 

The Reserve Bank, though, added a word of caution for the ongoing festive season. "While ebbing of second wave coupled with rapid progress in vaccination bode well for revival of consumer sentiment, the festive season warrants caution and continued adoption of Covid-appropriate behaviour," it said. 

"Agriculture sector continues to strengthen rural demand on the back of estimated increase of Kharif production, record-high procurement of wheat and paddy in Rabi Marketing Season and ongoing Kharif Marketing Season respectively," the RBI further stated. 

Satisfactory monsoon promises similar benefits in future as well, it added.

The central bank highlighted that "continued decline in growth of currency in circulation since August is indicative of decreasing demand for precautionary savings with progressive reopening of the economy." 

RBI On Equity Markets

"The domestic equity market remains buoyant on reassuring indications of both global and domestic economic recovery. FPI (foreign portfolio investment) flows into the country remain robust with India reporting highest inflow of $3 billion in September among emerging market economies. Thus far in this fiscal, India is reported to have received FPI worth $7.2 billion, the second highest after Brazil's $9 billion," the RBI said.

"These historic highs have engendered a bullish run in domestic equity markets as record additions of new Demat accounts (to hold the shares and securities in digital form) broaden the base of equity investment in the country," it added. 

Relief For Auto Sector?

The Reserve Bank stated that the auto sales will be subdued due to the semiconductor chips shortage. Currently, auto retailers are staring at huge losses as manufacturers struggle with vehicle dispatches to dealerships. "Automobile registrations and sales remain affected by global shortage of semiconductor chips,” the RBI said in its report. However, it expects the post-monsoon festive season to boost demand.

Meanwhile, the central bank maintained status quo on the interest rates in its October monetary policy. Repo rate - the key interest rates at which the RBI lends money to commercial banks – was kept steady at four per cent, and the reverse repo rate - the rate at which RBI borrows money from banks - at 3.35 per cent.

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