Second wave prompts RBI to revise growth forecast

The central bank, in its annual report for 2020-2021, further said that previous year has left a scar on the economy and “in the midst of the second wave, as 2021-22 commences, pervasive despair is being lifted by cautious optimism built up by vaccination drives.” 

“The onset of the second wave has triggered a raft of revisions to growth projections, with the consensus gravitating towards the Reserve Bank’s projection of 10.5 per cent for the year 2021-22 -- 26.2 per cent in Q1, 8.3 per cent in Q2, 5.4 per cent in Q3 and 6.2 per cent in Q4,” it said. 

The pandemic, it added, “is the biggest risk to this outlook. Yet, upsides also stem from the capex push by the government, rising capacity utilisation and the turnaround in capital goods imports.” 

RBI further said a collective global effort to fight the pandemic will surely bring better results than individual countries fighting on their own. It also said the conduct of monetary policy in 2021-22 would be guided by evolving macroeconomic conditions, with a bias to remain supportive of growth till it gains traction on a durable basis while ensuring inflation remains within the target. 

According to it the pace of contagion in the second wave of COVID-19 pandemic has been alarming, stretching the health infrastructure in terms of the capacity to handle a surge of this size and speed. 

The report said the deterioration in major fiscal indicators in 2020-21 may be attributed to the pandemic superimposed on a cyclical slowdown in tax revenues and a counter-pandemic fiscal push through higher government expenditure. 

For April and early May 2021, available high frequency indicators present a mixed picture, it said.