Central bank slashes growth forecast to 9.5% as virus eats into India economy
New Delhi, June 6 (EFE).- The Indian central bank Friday slashed the growth forecast to 9.5 percent from an earlier estimate of 10.5 percent after a devastating second wave of the coronavirus hampered its recovery efforts.
The Reserve Bank of India (RBI) also left policy lending rates unchanged at a record low level of 4 percent to support the recovery following the slump caused by the widespread Covid-19 infections.
In a virtual address to the media, RBI Governor Shaktikanta Das said the bank would continue with the “accommodative stance as long as necessary to revive and sustain growth on a durable basis.”
Das said the increased spread of Covid-19 infections in rural areas had posed downside risks for the Indian economy.
“(The) real GDP growth is now projected at 9.5 percent in 2021-22,” the bank governor said,
He estimated the rate of 18.5 percent in Q1, 7.9 percent in Q2, 7.2 percent in Q3, and 6.6 percent in Q4 of the financial year.
Das, however, predicted that the economic impact due to the second wave of the virus outbreak might not be as aggressive as the first wave last year, even as the rates of morbidity and mortality were “unexpectedly higher.”
“Unlike in the first wave, when the economy came to an abrupt standstill under a nationwide lockdown, the impact on economic activity is expected to be relatively contained in the second wave, with restrictions on mobility being regionalized and nuanced.”
He said people and businesses were now adapting to pandemic working conditions.
Government data, released at the end of the last month, showed that India’s gross domestic product contracted by 7.3 percent last fiscal year that ended on Mar.31.
It was the first yearly contraction since 1980-81 and the largest in about 70 years.
Most of the damage to the economy happened in the April-March quarter, India’s GDP contracted by a record 24.4 percent due to the nationwide lockdown in 2020.
The growth rate picked up by 1.6 percent in January-March compared with the previous quarter.
The governor said the bank’s monetary policy committee viewed that policy support was needed from all sides at this juncture to gain the momentum of growth and nurture the recovery that has taken root.
“Based on its assessment, the MPC voted unanimously to maintain status quo, keeping the policy repo rate unchanged at 4 percent.”
Das also announced additional liquidity measures to mitigate the impact of the second Covid-19 wave.
He said the bank decided to open a separate liquidity window of 150 billion Indian rupees (approximately $2 billion) with tenors of up to three years at the repo rate till March 31, 2022, for certain contact-intensive sectors. EFE