GDP Growth To Be In Negative Territory In 2020-21: RBI Governor

The RBI Governor said there will be a gradual revival in economic activity by second half of FY-2021.

The Reserve Bank of India (RBI) expects the country’s GDP or gross domestic product to contract in the current financial year, Governor Shaktikanta Das said on Friday, as he announced a reduction in the repo rate by 40 basis points to 4 per cent. GDP growth will be in the negative territory in 2020-21, Mr Das said in his first address to the media after the government unveiled a fiscal and monetary stimulus worth Rs 20.97 lakh crore to support the economy’s fight against the coronavirus pandemic and the weeks-long lockdown. Friday’s moves were aimed at countering the economic fallout from an ongoing nationwide lockdown to contain the spread of the coronavirus pandemic.

Here are 10 things to know:

  1. The COVID-19 crisis and the ongoing nationwide lockdown, with few exceptions, have impacted the economy and uncertainty surrounding the pandemic continues to loom, the RBI Governor said.

  2. “The outbreak of coronavirus has disrupted economic activities,” he said.

  3. Mr Das however expressed confidence of a gradual revival in economic activity and demand by the second half of the current financial year, which ends in March next year.

  4. “GDP growth in 2020-21 is estimated to remain in the negative territory with some pick up in growth impulses in the second half of 2020-21 onwards,” he said.

  5. The RBI Governor said the combination of fiscal, monetary and administrative measures being currently undertaken by both the government and RBI will create conditions for a gradual revival of economic activities in the second half of 2020-21.

  6. The surprise moves by the RBI on key interest rates and the extension of a loan moratorium by three months – which allows banks to defer loan payments from borrowers – came days after the government detailed monetary and fiscal support worth a total Rs 21 lakh crore.  

  7. The RBI chief said the global economy is heading into recession, and the domestic inflation outlook is “highly uncertain”. Headline inflation “may remain firm” in the first half of 2020-21 and ease in the remaining part of the financial year. 

  8. “Domestic economic activity has been impacted severely by the two-month lockdown,” he said. He also highlighted that the top-six industrialised states that account for 60 per cent of the country’s industrial output are largely in the red and orange zones.

  9. High-frequency indicators point to collapse in demand, and there is a plunge in demand for electricity and petroleum productions. The biggest blow is to private consumption, which accounts for 60 per cent of domestic demand, the RBI Governor said.

  10. The combined impact of demand compression and supply disruption will depress economic activity in the first half of the current fiscal year.

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