“Given this heightened volatility, unprecedented uncertainty and extremely fluid state of affairs, projections of growth and inflation would be heavily contingent on the intensity, spread and duration of COVID-19. Precisely for these reasons, the MPC refrained from giving out specific growth and inflation numbers,” Reserve Bank of India Governor Shaktikanta Das said Friday.
“The need of the hour is to do whatever is necessary to shield he domestic economy from the pandemic,” he said, announcing a slew of measures — from rate cut to moratorium on loans — aiming to revive the economy and provide relief to lenders across the spectrum.
“If COVID-19 is prolonged and supply chain disruptions get accentuated, the global slowdown could deepen, with adverse implications for India,” the central bank governor said.
He said that the implied real GDP growth of 4.7 per cent for the fourth quarter as estimated by the National Statistics Office in February, within the annual estimate of 5 per cent for the year as a whole, is now at risk from the pandemic’s impact on the economy.
Meanwhile, Moody’s Investors Service has cut India’s 2020 growth forecast by more than half to 2.5% barely within three week of its previous downgrade to 5.3%. In February, the global rating firm had projected India’s economy to grow at 5.4% rate.
Moody’s, in its Global Macro Outlook 2020-21 released Friday, said India is likely to suffer sharp loss in incomes which would further weigh on domestic demand and the pace of recovery as the country goes into 21-day lockdown. It however maintained its estimate of 5.8% growth for India in 2021.
Global economic activities have come to a near standstill as COVID-19 related lockdowns and social distancing are imposed across a widening swathe of affected countries. “Expectations of a shallow recovery in 2020 from 2019’s decade low in global growth have been dashed. The outlook is now heavily contingent upon the intensity, spread and duration of the pandemic. There is a rising probability that large parts of the global economy will slip into recession,” Das said.
Agriculture productivity in India has no far remained unaffected but the supply disruptions and panic buying are pushing food prices up. Heightened volatility in financial markets could also have a bearing on inflation, RBI said.
Inflation prints for January and February 2020 indicate that actual outcomes for the quarter are running 30 bps above projections, reflecting the onion price shock. “Looking ahead, food prices may soften even further under the beneficial effects of the record foodgrains and horticulture production, at least till the onset of the usual summer uptick,” Das said.
The collapse in crude prices is expected to ease both fuel and core inflation pressures, depending on the level of the pass-through to retail prices. “As a consequence of COVID-19, aggregate demand may weaken and ease core inflation further,” Das said.