Growth Forecast Revisions Resurface Amidst Second Covid Wave

The central bank on Thursday said that even though bruises from the first Covid wave are still fresh, the second wave has triggered a revision of growth forecasts for the current financial year with consensus gravitating towards its earlier projection of 10.5 per cent. 

"In the midst of the second wave, as 2021-22 commences, pervasive despair is being lifted by cautious optimism built up by vaccination drives,” the Reserve Bank of India said in its annual report for 2020-21. 

The pandemic, it added, "is the biggest risk to this outlook. Yet, upsides also stem from the capex push by the government, rising capacity utilisation and the turnaround in capital goods imports."

RBI added a stimulus to the fight against the pandemic and said that a collective global effort to fight the pandemic will surely bring better results than individual countries fighting on their own.

The evolving macroeconomic conditions will guide the conduct of monetary policy in 2021-22, it said. 

According to it the pace of contagion in the second wave of the Covid-19 pandemic has been alarming, stretching the health infrastructure in terms of the capacity to handle a surge of this size and speed.

The report said the deterioration in major fiscal indicators in 2020-21 may be attributed to the pandemic superimposed on a cyclical slowdown in tax revenues and a counter-pandemic fiscal push through higher government expenditure. 

"Going forward, as growth revives and the economy gets back on track, it is important for the government to adhere to a clear exit strategy and build fiscal buffers, which can be tapped into in events of future shocks to growth," the RBI said.

For April and early May 2021, available high frequency indicators present a mixed picture, it said.

While mobility and sentiment indicators have moderated, several activity indicators have shown resilience in the face of the second wave. 

Goods and services tax (GST) collections hit the highest record by crossing the Rs 1 lakh crore mark for the seventh consecutive month in April.