RBI Pegs Output Loss From Second Covid Wave At Rs 2 Lakh Crore

A man exits a store at Conaught Place as lockdown restrictions are eased in New Delhi, India, on Wednesday, June 16, 2021. Photographer: Anindito Mukherjee/Bloomberg

RBI Pegs Output Loss From Second Covid Wave At Rs 2 Lakh Crore

India is estimated to lose output worth Rs 2 lakh crore in FY22 because of the second wave of Covid-19 on the assumption that its impact will be contained in the first quarter of the fiscal, according to the Reserve Bank of India.

The Indian economy continues to wrestle with the second wave of the pandemic, though cautious optimism is returning, the central bank said in its monthly bulletin. Agriculture and contactless services are holding up, while industrial production and exports have surged amidst pandemic protocols, it said.

The speed and scale of vaccination will shape the path of recovery, the RBI said. The economy has the resilience and the fundamentals to bounce back from the pandemic and unshackle itself from pre-existing cyclical and structural hindrances, it said.

On Surplus Transfer: An aspect of the annual report that has raised considerable heat and dust in the media is the surplus transferred to the government, the RBI bulletin said. Mainly stemming from savings on balance sheet provisions and employees’ superannuation and other funds, the surplus constitutes just 0.44% of the GDP, it said.

From the point of the surplus transfer, the RBI can be characterised as ‘free-ranging’ and conducting independent monetary policy, independent of fiscal dominance, the bulletin said.

Other Key Highlights:

  • Rising volatility in international commodity prices over the last decade has resulted in the weakening of the long-run relationship between CPI and WPI inflation.

  • India is the fifth largest reserve holding country in the world, the 12th largest foreign holder of the U.S. treasury securities and the 10th largest in terms of gold reserves.

  • In terms of projected imports for FY22, the current level of reserves provides cover for less than 15 months.

  • Higher FPI activity in the equity market reflects their rising confidence about an impending recovery in the economy, alleviating earlier concerns of investors on corporate earnings.

  • Currency holding with public has also decelerated significantly to 1.7% during April 2021 in comparison to the growth of 3.5% a year ago, implying heavy outgo towards Covid-induced medical expenditure.

Life- and work-style transformation such as increased remote work and online shopping may likely endure, the RBI said. When patterns of demand shift, some firms may face closure while others may become permanently smaller, according to the central bank. What matters is that resources are put to their best use and that reallocation occurs smoothly and with as few costs as possible, it said.

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