RBI Projected 9.5% Contraction in GDP

Reserve Bank of India (RBI) projected gross domestic product (GDP) contracting by 9.5 per cent in the current financial year amid disruptions caused by coronavirus pandemic which may turn positive in the last quarter (January to March).

"The Indian economy is entering into a decisive phase in the fight against coronavirus. For the year 2020-21 as a whole, real GDP is expected to decline by 9.5 per cent with risks tilted to the downside," said RBI Governor Shaktikanta Das.

"If, however, the current momentum of upturn gains ground, a faster and stronger rebound is eminently feasible. Barring the incidence of a second wave, India stands poised to shrug off the deathly grip of the virus and renew its tryst with its pre-COVID growth trajectory."

Das said the RBI's assessment is that inflation will remain elevated in September but ease gradually towards the target over Q3 and Q4. The analysis also suggests that supply disruptions and associated margins and markups are the major factors driving up inflation.

Das said that cushioned by government spending and rural demand, manufacturing gradually recovered in the second quarter. Agriculture outlook is robust and merchandise exports are slowly catching up to pre-COVID levels.

A day earlier, the World Bank cut India's GDP forecast and said it is expected to contract by 9.6 per cent in FY21 compared to June estimates of 4.5 per cent contraction.

During the April to June quarter, the economy shrank 23.9 per cent due to deep cuts caused by COVID-19-induced disruptions.

Meanwhile, the RBI's newly-constituted monetary policy committee (MPC) has unanimously decided to keep the repo rate unchanged at 4 per cent and maintain its accommodative stance in a bid to revive growth on a durable basis.

Reverse repo rate remained unchanged at 3.35 per cent. The marginal standing facility and bank rate also remained unchanged at 4.25 per cent.