Reserve Bank of India (RBI) Governor Shaktikanta Das said on Thursday that the country’s economy has exhibited a stronger-than-expected rebound from the initial impact of the coronavirus pandemic, but there is a need to be watchful of demand sustainability after the festive season. “After witnessing a sharp contraction in the economy in Q1 and a multi-speed normalisation of activity in Q2, the Indian economy has exhibited a stronger-than-expected pickup in recovery momentum,” Mr Das said. His remarks come a day before the government is scheduled to release gross domestic product (GDP) data for the July-September period, as the economy is on track to register its first annual contraction in more than four decades.
Even as the economic outlook has improved, downside risks to growth continue due to the recent surge in COVID-19 infections in parts of Europe and also in India, Mr Das said.
“Many COVID-19 relief measures have been taken proactively… Increased interaction with markets helped us take measures to tackle the coronavirus pandemic,” the RBI Governor said, speaking at the annual day event of Foreign Exchange Dealers’ Association of India (FEDAI).
Earlier this month, the government announced a third set of measures, worth Rs 2.65 lakh crore, as part of its Atmanirbhar Bharat series of announcements aimed at rescuing the economy out of a historic contraction caused by the coronavirus pandemic.
Those measures took the total monetary and fiscal aid for the economy’s battle against a COVID-19-led slowdown to Rs 29.88 lakh crore, which Finance Minister Nirmala Sitharaman said was equivalent to about 15 per cent of the country’s gross domestic product (GDP). The Atmanirbhar Bharat 3.0 stimulus package included additional funding for real estate developers and contractors, fertiliser subsidies, a new employment scheme and additional spending on the rural jobs scheme, among other initiatives.
“Our efforts have been at the forefront. The economy has shown a stronger-than-expected pickup in momentum. Need to be watchful of demand sustainability post festivals,” the RBI Governor added.
“The RBI will continue to act to mitigate downside risks… A comfortable external balance and the current account surplus have brought comfort… The downside risks to global economy continue because of rising COVID-19 cases,” he said.
The RBI Governor also said the central bank has taken several steps to liberalise and internationalise the domestic financial markets. He also said regulatory reforms have moved the financial markets to the next trajectory despite the coronavirus pandemic.
The economy – which the International Monetary Fund had singled out as a global bright spot only a few years ago – is seen shrinking over 10 per cent in the current financial year, which would be its worst annual contraction in four decades. It shrank a record 23.9 per cent in the April-June period.
The RBI is due to conduct a bi-monthly review of its monetary policy next week.