India’s GDP could contract 9.5% in FY21, repo rate intact at 4%

India’s GDP could contract 9.5% in FY21, repo rate intact at 4%

Call it the Coronavirus impact. India’s GDP in the current financial year is likely to contract by 9.5%, as the Reserve Bank of India predicts. In the first quarter (April-June) of this fiscal, India’s GDP contracted 23.9%, as estimated by the Central Statistics Office (CSO).

RBI also said the growth is likely to pick up in the second half of the current fiscal and enter into the positive zone in the fourth quarter (January-March) of FY21.

On Friday, after a meeting of the Monetary Policy Committee, RBI Governor Shaktikanta Das said that Indian economy is entering into a decisive phase in the fight against the devastating Coronavirus pandemic.

PIC

India has so far registered 6.91 million Coronavirus positive cases, with more than 1.06 lakh people already dead. The daily rate of infection is more than 70,000 now.

Speaking about India’s GDP contraction in RBI Governor said that despite the 23.9% contraction in economic growth in the April-June quarter of this fiscal, there are silver linings visible. He also highlighted the uptick in the manufacturing sector and energy consumption among others.

Back in March 2020, India entered into a three-month-long countrywide lockdown in a bid to contain the outbreak of the Coronavirus infection. During this phase, the economic activity across the country faced a massive slump as the factories were shut. However, with the gradual reopening of the Indian economy, the situation is normalising despite the surging cases of Coronavirus.

RBI Governor also predicted that inflation is expected to ease to the target level in the fourth quarter (January-March) of the current financial year. In recent months, Retail Inflation (CPI), which the RBI factors in its monetary policy, has remained above 6%.

The Central Government has tasked RBI to keep the inflation rate at 4% with a margin of 2% on either side.

Repo rate unchanged at 4%

Meanwhile, the RBI Monetary Policy Committee on Friday decided to hold key policy rates unchanged at existing levels (4%) amid high inflation.

“Monetary Policy Committee (MPC) voted unanimously to keep the policy repo rate unchanged at 4%. MPC also decided to continue with the accommodative stance of monetary policy as long as necessary at least through the current financial year and next year,” said RBI Governor Shaktikanta Das while briefing the media on Friday.

This was the first meeting of the new RBI MPC that was formed after the appointment of three eminent economists, who are Jayant Verma, Ashima Goyal and Shashanka Bhide. These three new external members of the panel voted in today’s decision.

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