RBI Watch:COVID second wave’s hit seen in surveys, if not growth view

Informist, Thursday, Apr 8, 2021


By Siddharth Upasani


The Reserve Bank of India may not have lowered its GDP growth forecast for 2021-22 (Apr-Mar) on Wednesday, but its forward-looking surveys seemed to capture some impact on the economy from the second wave of the coronavirus.


As per the March round of the Consumer Confidence Survey, the current situation index declined to 53.1 from 55.5 in January due to deteriorating sentiments on the general economic situation, income, and prices.


A reading of less than 100 is indicative of pessimism.


Even the future expectations index for the one-year-ahead period fell to 108.8 from 117.1.


Next is the Services and Infrastructure Outlook Survey for Jan-Mar. After what the RBI termed was a strong recovery in Oct-Dec, service sector enterprises witnessed a decline in the overall business situation and their turnover in Jan-Mar, with the net response percentage slumping to 20.9% from 30.9%.


A positive value of the net response percentage is indicative of optimism.


On the inflation front, households' inflation expectations were up 80 basis points in the March survey for the three-month-ahead period and 10 bps for the one-year-ahead period.


But it was not all bad news. The Industrial Outlook Survey of the manufacturing sector showed the Business Assessment Index rose to 113.1 in Jan-Mar from 108.6 in Oct-Dec, with the expectations index rising to 119.6 for Apr-Jun. However, even here, manufacturing firms see selling prices and profit margins rising in the first quarter of 2021-22 at a time when core inflation is already near 6.0%.


The other key survey on the economy released by the RBI on Wednesday, the Order Books, Inventories and Capacity Utilisation Survey, isn't considered here as it was for Oct-Dec, well before the second wave began in the second half of February.


At 10.5%, the RBI's GDP growth forecast for this year is already on the lower side. The International Monetary Fund, for instance, expects the Indian economy to expand 12.5% this year, having raised its forecast by a massive 370 bps since December.


With regional restrictions on the rise, activity can only reduce. And it won't even take a repeat of last year's national lockdown to significantly hit growth, what with certain states, such as Maharashtra, contributing far more to the national GDP than others.


Even if states bearing the brunt of the coronavirus' resurgence manage a quick clampdown on new cases, one wonders what lies in store for those in the middle of their elections. Going by the crowds seen at these political rallies, victory could prove to be a poisoned chalice for those vying for control.  End


Edited by Maheswaran Parameswaran


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