Home > Industry > Banking > India's GDP growth in 2020-21 to remain in negative territory: RBI

The Reserve Bank of India (RBI) today trimmed India's growth forecast for FY21 as the coronavirus pandemic has disrupted economic activities. "The GDP growth in 2020-21 is expected to remain in the negative territory with some pick up in second half," RBI governor Shaktikanta Das told a press conference today.

He said economic activity in India was severely impacted by the nationwide lockdown in the last two months. The biggest blow to the economy has come from the slump in private consumption. Consumer durables production has reduced 33% in the March. Electricity consumption has also plunged. Service sector has contracted — passenger and commercial vehicle sales, domestic air passenger traffic and foreign tourist arrivals have slumped in March. However, agri sector remained the ray of hope, Das said.

The governor added that growth forecasting has become complicated due to difficulty in data collection. "The end-May 2020 release of NSO on national income would provide greater clarity, enabling more specific projections of GDP growth in terms of both magnitude and direction," RBI governor said.

The central bank of India gave a directional inflation guidance, citing complications due to partial release of data by the NSO. “The Monetary Policy Committee assessed that inflation outlook is highly uncertain," Das said.

“The MPC is of the view headline inflation will remain firm in first half of 2020 but will ease in second half," says RBI governor.

“By Q3 and Q4 of financial year it is expected that headline inflation will fall below the target of 4%," Das said. Combination of fiscal, monetary and administrative actions will create conditions for revival of economy in the second half of FY21, Das added.

Revenues were affected due to slowdown in economic activity amid COVID-19 outbreak. "Much will depend on how quickly the COVID curve flattens and begins to moderate," the RBI governor stated.

Even though the lockdown may be lifted by May end with some restrictions, economic activity even in Q2 may remain subdued due to social distancing measures and the temporary shortage of labour, he said.

"Recovery in economic activity is expected to begin in Q3 and gain momentum in Q4 as supply lines are gradually restored to normalcy and demand gradually revives," Shaktikanta Das mentioned.

Coronavirus lockdown is likely to limit India's GDP growth to -6% to 1% in the financial year 2020-21, NK Singh, chairman of the 15th Finance Commission said.

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