The Reserve Bank of India (RBI) has observed that the Indian economy continues to wrestle with the second wave of Coronavirus pandemic even though cautious optimism is returning. It has assessed that the second wave has basically hit domestic demand hard.
In its monthly bulletin for June 2021, the central bank has focussed on the overall state of the economy, India’s sovereign yield curve and the fiscal framework of the country, in the form of three articles.
Commenting on the state of the economy, the central bank has said that while the second wave has hit domestic demand, on the brighter side, several aspects of aggregate supply conditions – agriculture and contactless services are holding up, while industrial production and exports have surged compared to last year amidst pandemic protocols.
“Going forward, the speed and scale of vaccination will shape the path of recovery. The economy has the resilience and the fundamentals to bounce back from the pandemic and unshackle itself from pre-existing cyclical and structural hindrances,” it said.
In the macroeconomic view of India’s sovereign yield curve, RBI found that the level of the yield curve has undergone a downward shift from the second quarter of 2019, reflecting the ultra-accommodative stance of monetary policy.
On the fiscal framework and quality of expenditure in India, the RBI noted in its study that the Coronavirus pandemic necessitated an overwhelming fiscal response from governments across the world.
“As India unwinds the fiscal stimulus and embarks on the path of fiscal adjustment, it is necessary to emphasise on ‘how’ over ‘how much’. This article proposes a few quantifiable indicators, i.e. ratios of revenue expenditure to capital outlay and revenue deficit to gross fiscal deficit along with threshold levels for them, that can be suitably blended into the fiscal fabric for a sustainable growth trajectory,” the RBI bulletin has noted.