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The Reserve Bank of India (RBI) Governor Shaktikanta Das. (REUTERS)
The Reserve Bank of India (RBI) Governor Shaktikanta Das. (REUTERS)

Need to be watchful about sustainability of demand : RBI Governor Shaktikanta Das

  • The RBI governor’s statement comes at a time when the country has been witnessing a recent surge in covid-19 cases in certain parts of the country
  • Shaktikanta Das said that India’s move towards capital account convertibility will be a process rather than an event

MUMBAI : Reserve Bank of India Governor Shaktikanta Das on Thursday said that even as the growth outlook for the Indian economy has improved, downside risks to growth continue due to recent surge in infections in advanced economies and parts of India.

Speaking at a foreign exchange dealers’ conference, Das warned that while the Indian economy has seen stronger than expected pick up in momentum of recovery after seeing a contraction in growth in the first quarter, one has to be watchful of demand sustainability post the festive season.

“After witnessing a sharp contraction in GDP by 23.9% in Q1:2020- 21 and a multi-speed normalisation of activity in Q2, the Indian economy has exhibited stronger than expected pick up in momentum of recovery," said Das.

Das added, “We need to be watchful about the sustainability of demand after festivals and a possible reassessment of market expectations surrounding the vaccine. The monetary policy guidance in October emphasised the need to see through temporary inflation pressures and also maintain the accommodative stance at least during the current financial year and into the next financial year."

The RBI governor’s statement comes at a time when the country has been witnessing a recent surge in covid-19 cases in certain parts of the country, leading to possibility of states imposing local restrictions again.

With a view to contain the spread of covid-19, States and union territories, based on their assessment of the situation, may again impose local restrictions, the Ministry of Home Affairs (MHA) said in a fresh order on Wednesday.

The total tally of covid-19 cases reached 92,23,698 and death toll touched 1,35,782 on Wednesday. India’s present active caseload (4,44,746) is 4.82% of the total Positive Cases. 4,376 new confirmed cases were recorded in the last 24 hours, according to the union health ministry. Ten States/UTs have contributed 76.51% of the new cases.

While the festive season saw strong demand in categories such as smartphones and electronics, sales in auto and apparel remained muted.

As per data from Retailers Association of India (RAI), while electronics retailers reported a 15-18% jump in the 30-day period prior to Diwali compared with a year ago period, formal-wear retailers reported a 35% drop in business. Meanwhile, athleisure, casual wear and fitness footwear reported growth, while sales of home-related items were down 10%.

Retail sales of passenger vehicles in October fell 8.8% from the year earlier as the continuing impact of the pandemic and a high base outweighed robust demand during the 10-day Navratri festival period.

India’s largest car maker Maruti Suzuki India Ltd, on 30 October, said that it is cautious on whether the sales momentum seen since the lockdown was eased will sustain beyond the festive season because of concerns over demand in the urban markets.

In his address, Das also said that India’s move towards capital account convertibility will be a process rather than an event. He also assured that the central bank is committed to the orderly functioning of the markets.

“Capital account convertibility will continue to be approached as a process rather than an event, taking cognizance of prevalent macroeconomic conditions. A long term vision with short and medium term goals is the way ahead," he added.

The central bank’s monetary policy committee will be meeting for the bi-monthly monetary policy next week from 2 to 4 December.

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