RBI: Demand Shock to Hit India
Investing.com — A bulletin released by the Reserve Bank of India (RBI) had a somber introduction to the current state of the Indian economy. It said, “Real economy indicators moderated through April-May 2021. The biggest toll of the second wave is in terms of a demand shock – loss of mobility, discretionary spending, and employment, besides inventory accumulation, while the aggregate supply is less impacted.”
It clearly indicates that consumer sentiment has been hit and there is a loss in the momentum of economic recovery. There is no great impact on the supply side. As the bulletin says agriculture growth is robust. “In the National Statistical Office (NSO) print for March 2021, industrial production surged out of a two-month contraction on the tailwinds of a large favourable base effect. Nonetheless, seasonally adjusted annualised month on month momentum was positive for the fourth consecutive month.
“Yet anecdotal evidence points to feedback loops from the demand contraction seeping through into curtailments of output in the months ahead unless infections ebb.”
The RBI is positive that the hit on the economy hasn’t been as severe as 2020. It said, “The resurgence of COVID-19 has dented but not debilitated economic activity in the first half of Q1:2021-22. Although extremely tentative at this stage, the central tendency of available diagnosis is that the loss of momentum is not as severe as at this time a year ago.”