In its July bulletin, The Reserve Bank of India (RBI) announced that for the April to June 2021 quarter real GDP growth may have been at 22.1%. Contributing factors to this estimate include the controlled second wave and aggressive vaccination drives which have improved the near-term prospects for the Indian economy.
The RBI also mentioned that recovery in aggregate demand is still low and is yet to take place despite the 9.5% GDP growth in FY 2020-21. The central bank stated that “demand pressures may take time to become more evident.” On the other hand, the supply side is taking a positive turn as agricultural conditions are improving due to revival in the monsoon season. However, the recovery of the manufacturing and services sectors remains interrupted due to the second wave of the pandemic.
Furthermore, the RBI stated that the rise in inflation can be attributed to adverse supply shocks particularly for protein-rich food items, edible oils and pulses, and sector-specific demand-supply mismatches caused by the pandemic. However, it is expected that these factors will ease over the current fiscal year as supply-side measures are implemented. Despite inflation remaining above the RBI’s upper threshold of 6% in May and June 2021, it is being predicted that inflation levels will hover around this level before easing sometime in the third quarter of FY 2021-22 on account of the Kharif harvest.
The report also mentioned that “Steps have been taken to address specific supply-side measures, but more needs to be done.”
With regard to the future scenario, the report mentioned that as per a mathematical model in the most optimistic scenario the third wave could be “just a ripple” and that normalcy in life could be achieved by August 2021. In the pessimistic scenario which takes into account the new 25% more infectious virus as compared to the Delta+ variant, if it spreads in August 2021 then the 3rd wave could have a bigger and more severe impact as compared to the second wave.