Get Along Get It Right This Year

Context: An analysis of prospects for the Indian economy in a post-COVID era.

Factors Affecting Post-COVID Economic Recovery of India

• Incentives for manufacturers: through the inclusion of 10 more sectors in Production-Linked Incentive (PLI) scheme to aid production and exports.
• Rural-side demand: Healthy Kharif output, better prospectus of rabi sowing, along with higher government spending augurs well for agriculture production and rural incomes.
• Lower mortality rate: will ensure economic recovery in comparison to peers;
• Reserve Bank of India’s (RBI) pause in rate cut: RBI is likely to opt for a pause in rate cut until inflation pressures abate (retail inflation has crossed upper tolerance level of 6%)
  • Meanwhile, RBI should continue to provide an accommodative policy environment while ensuring financial stability.
• Fiscal growth and stimulus: characterized by rising Goods and Services Tax (GST) collections and customs and excise duties, opportunistic disinvestments, and revenue from spectrum auctions.
• Covid-19 induced behavioural shift among consumers: is incentivizing financial savings which are expected to have a beneficial impact on the banking and financial industry,
  • The aggregate deposit-to-GDP ratio rose to a high of 74.9% in Q3 CY2020.
• Sectoral divergence in credit growth: The sectors like agriculture, vehicle and food processing are seeing improved annualized credit growth despite moderate headline credit growth.

Conclusion: India’s path to economic recovery in 2021 requires a continuously synchronized broad-based policy support from both RBI and GoI for reviving consumption, investment and financial sectors.