Reserve Bank of India (RBI) has said that there will be “substantial slack” in growth for the Indian economy, although it is poised to recover and witness positive growth in the current fiscal.
The RBI Bulletin for July 2021 noted that the economy is struggling to regain the momentum of recovery that had started in the second half of 2020-21 but was interrupted by the second wave of Covid.
“Even with a 9.5 per cent GDP growth in 2021-22, there will be substantial slack in the economy and demand pressures may take some more time to become evident,” it said.
The pick-up in inflation is driven largely by adverse supply shocks due to disruptions caused by the pandemic, including increases in margins and taxes, it said, adding that there are also specific demand-supply mismatches as in the case of protein-rich food items, edible oils and pulses, which are being addressed by specific supply-side measures.
“But more needs to be done. Elevated international commodity prices, especially of crude, are also imparting cost-push pressures. These factors should ease over the year as supply-side measures take effect,” the RBI Bulletin said.
Noting that inflation ruled above the tolerance band during June-November 2020 and has again moved above the upper tolerance threshold in May and June 2021, it said that the sense is that inflation will persist at these elevated levels for some months before easing in the third quarter of 2021-22 when the Kharif harvest arrives in markets.