Indian economy on revival despite unsettling global developments, RBI paper says

The manufacturing and services remain in expansion with optimism on demand parameters and uptick in consumer and business confidence, RBI said in a note prepared by its economic and policy research team.

“The renewed emphasis on public investment through infrastructure development is expected to crowd-in private investment and strengthen job creation and demand in 2022-23,” RBI said in the note on the state of the economy.

However, there are signs of rural demand slackening, even as the farm sector conditions remain robust, the note added.

India’s economic activity is recouping from a brief spell of moderation in January in view of the less virulent effects of the Omicron variant of Covid-19.

The overall consumer and business confidence stayed resilient, unlike in the first two waves, on the back of the accelerated pace of vaccination, better prospects on the general economic situation, household incomes and spending.

RBI said that while the continued accommodative monetary policy helped in revival of economic activities, the global spillovers of higher commodity prices, persistence of supply chain bottlenecks and uncertainties have led to a tightening of financial conditions.

Surplus liquidity in the banking system moderated, with daily net liquidity absorption under the liquidity adjustment facility averaging Rs 6.4 lakh crore in the second half of January through February 14, 2022, lower than Rs 7 lakh crore during December 2021 to mid-January 2022.

The global economy stands at an inflection point with spikes in inflation and the possibilities of policy tightening and rise in rates dampening investor sentiment. This could unsettle capital flows and impede the embryonic recovery going forward.

“Notwithstanding this unsettled global environment, the domestic economic situation continues to improve. The Union Budget 2022-23 and the monetary policy announcement of February 10, 2022 have set the tone for a durable and broad-based revival,” the note said.