India set to re-emerge as among fastest-growing economies, says RBI

The aggregate demand in the economy is improving and overall monetary and credit conditions are conducive for a durable economic recovery to take root, while the quality of the government expenditure has seen an improvement in the second half, said the Reserve Bank of India (RBI) in its ‘state of the economy’ report released on Monday.

“Supported by the decadal low-interest rates, softening inflation and a modest current account surplus, the Indian economy is poised to regain the ground lost to the pandemic and re-emerge as among the fastest growing countries in the world,” said the report, published as a part of RBI’s monthly bulletin for November.

“Indicators of aggregate demand posit a brighter near-term outlook than before,” the report added. “Mobility is rapidly improving, the job market is recouping and overall economic activity is on the cusp of a strengthening revival.”

The report was bullish on India’s prospect in the coming days even as global economic conditions remained uncertain amid the risk of faster policy normalisation by major central banks leading to tightening of financial conditions and stifling of growth impulses.

“The Indian economy is clearly differentiating itself from the global situation, which is marred by supply disruptions, stubborn inflation and surges of infections in various parts of the world,” it said.

High-frequency indicators show that the recovery is taking hold in several spheres, “though some others are still lagging behind.”

With the gradual uptick in confidence, mobility indicators have edged up, “the job market is exhibiting signs of ebullience on the back of an uptick in business optimism and faster pace of vaccination.”

Exports are slowly recovering, while collections under the goods and services tax (GST) have been robust.

However, the speed and pace of improvement in the domestic economy remain uneven across different sectors. There has been a record kharif production, while the rabi season has started on a positive note.

Manufacturing is showing improvement in overall operating conditions, while services are in strong expansion mode, it said.

Nevertheless, the domestic outlook “remains overcast by the future course of pandemic and global supply disruptions,” even as the dip in fresh infections and rapid progress in inoculations have been encouraging.

The report also noted that the quality of the government expenditure has improved, “with the revenue expenditure to capital outlay ratio (RECO) showing a marked improvement in the second half of 2021-22 relative to its trend level.”

States’ capital expenditure has “surged during April-August, spurred by an impressive growth in tax revenues.”

The release of the GST compensation cess of Rs 44,000 crore will further improve the states’ revenue position. With this, the government has transferred the entire Rs 1.59 trillion on back to back loan basis to states without resorting to additional borrowing from the market.

The total GST compensation to states is expected to be around ‘2.59 trillion in 2021-22, the RBI said.

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