Yesterday, the Reserve Bank of India (RBI) released its report on Currency and Finance (RCF). The report stated that the Indian economy might take more than a decade to overcome the losses caused by the outbreak of the COVID-19 pandemic.
The pre-COVID trend growth rate works out to 6.6%, excluding the slowdown years; it works out to 7.1%. Taking the actual growth rate of (-) 6.6% for 2020-21, 8.9% for 2021-22, and assuming a growth rate of 7.2% for 2022-23 and 7.5% beyond that, India is expected to overcome COVID-19 losses in 2034-35.
The output loss for individual years has been worked out at Rs. 19.1 lakh crore, Rs. 17.1 lakh crore and Rs. 16.4 lakh crore for 2020-21, 2021-22, and 2022-23, respectively. As per the RCF, a feasible range of medium-term steady GDP growth in India works out to 6.5%-8.5%, consistent with the blueprint of reforms, and timely rebalancing of monetary and fiscal policies will likely be the first step in this journey.
The report concluded that with the ongoing Russia-Ukraine conflict, the downward risks to global and domestic growth are getting accentuated through surges in commodity prices and global supply chain disruptions. The supply constraints and longer delivery times pushed up shipping costs and commodity prices, intensifying inflationary pressures and threatening the nascent economic recovery worldwide. Hence the authors noted that price stability would be a key to solid and sustainable growth.
India, too, has felt the pressure from the global supply chain disruptions, with the supplier’s delivery time falling to its lowest point of 29.5 in April 2020. While the delivery time improved after that, it remained below 50 through 2020- 21 and 2021-22. The increased delivery times and higher raw material prices squeezed profits of Indian firms from Q3:2020-21 onwards.
The Indian automobile sector, which benefitted from consumers’ preference for personal vehicles, received a jolt from the global semiconductor shortages, making them incapacitated to benefit from increased demand. There was a surge in waiting periods for customers.
Growth risk from geopolitics-induced supply shocks looks more acute for oil importers like India, who are already facing a tight fiscal position due to the pandemic-related relief packages by the Government.
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