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COVID-19 'drastically' alters India's growth outlook: RBI

09 Apr '20
2 min read
Pic: Shutterstock
Pic: Shutterstock

The COVID-19 outbreak, the lockdowns and the likely contraction in global output this year weigh heavily on India’s growth outlook, the Reserve Bank of India (RBI) today cautioned, underscoring its growing impact on economic growth. It would affect economic activity directly and indirectly, RBI said, without coming out with any growth forecast for this year.

"The actual outturn would depend upon the speed with which the outbreak is contained and economic activity returns to normalcy," RBI said in its Monetary Policy Report, warning that COVID-19 “hangs over the future, like a spectre."

Describing the present environment as ‘highly fluid’, RBI said that it is assessing the "the intensity, spread and duration of COVID-19".

Prior to the outbreak, the growth outlook for 2020-21 was looking up, with bumper Rabi harvest, the improving transmission of past reductions in the policy rate and last year's sharp cut in corporate tax rates. But the pandemic has drastically altered this, RBI said.

The central bank noted that though there has been a sharp fall in global crude prices which, if sustained, could improve the country’s terms of trade, "the gain from this channel is not expected to offset the drag from the shutdown and loss of external demand."

India's economy expanded at its slowest pace in more than six years in the last three months of 2019 and the nationwide lockdown is set to sharply affect March quarter growth.

The impact of the pandemic is ambiguous, with a possible decline in food prices likely to be offset by potential cost-push increases in prices of non-food items due to supply disruptions.

The RBI report projects consumer price index (CPI) inflation to ease to 4.8 per cent in the June quarter, 4.4 per cent in the September quarter, 2.7 per cent in the December quarter and 2.4 per cent in the March quarter of fiscal 2020-21, "with the caveat that in the prevailing high uncertainty, aggregate demand may weaken further than currently anticipated and ease core inflation further, while supply bottlenecks could exacerbate pressures more than expected."

Fibre2Fashion News Desk (DS)

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