The Reserve Bank of India (RBI) in its ‘State of the Economy’ report released on Monday, November 15, 2021, said aggregate demand in the economy is improving and overall monetary and credit conditions are cconducive for a durable economic recovery to take root, while the quality of government spending has seen an improvement in the second half.
“Supported by decade low interest rates, moderation in inflation and a modest current account surplus, the Indian economy is set to regain ground lost by the pandemic and re-emerge as the world’s fastest-growing country,” the report said, published as a part of RBI’s monthly bulletin for November.
“Indicators of aggregate demand show a brighter near-term outlook than previously thought,” the report said. “Mobility is improving rapidly, the job market is improving and overall economic activity is on the verge of a strong revival.”
The report was optimistic about India’s prospects in the coming days, while the global economic situation remained uncertain amid risks of rapid policy normalization by major central banks, tightening financial conditions and dampening growth impulses.
“The Indian economy is isolating itself from the global situation, which is affected by supply disruptions, stubborn inflation and growth of infections in different parts of the world,” it said.
High-frequency indicators suggest that recovery is gaining momentum in many areas, “though some others are still lagging.” With a gradual increase in confidence, mobility indicators have risen, the job market is showing signs of enthusiasm behind an uptick in business optimism and the rapid pace of vaccination.
Exports are slowly recovering, while collections under the goods and services tax (GST) have been robust.
Exports are recovering slowly, while collections under the Goods and Services Tax (GST) have remained strong. However, the pace and speed of recovery in the domestic economy across sectors remains uneven. There has been a record production of Kharif, while the start of the Rabi season has been positive.
Manufacturing is showing improvement in overall operating conditions, while services are in strong expansion mode, it said.
The report also noted that the quality of government expenditure has improved, “The revenue expenditure to capital outlay ratio (RECO) has shown a significant improvement in the second half of 2021-22 relative to its trend level.”
The release of GST Compensation Cess of Rs 44,000 crore will further improve the states’ revenue position. With this, the government has transferred the entire Rs 1.59 trillion to the states on a back to back loan basis without resorting to additional borrowing from the market.
The RBI said the total GST compensation to states is expected to be around Rs 2.59 trillion in 2021-22.
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