The Reserve Bank Of India (RBI) Governor Shaktikanta Das stated today that consumption demand has been improving, with pent-up demand getting reinforced by the festive season. Rural demand is exhibiting resilience and farm employment is picking up with the robust performance of agriculture and allied activities, supported by a strong start to rabi sowing, continuing direct transfers under the PM-Kisan scheme and extension of free foodgrains under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) till March 2022. Urban demand has also shown signs of strengthening, with spending on travel and tourism surging in the last few months. Other indicators like railway freight traffic, port cargo, GST receipts, toll collections, petroleum consumption and air passenger traffic have also picked up in October/November. The recent reductions in excise duty and state VAT on petrol and diesel should support consumption demand by increasing purchasing power. Government consumption is also picking up from August, providing support to aggregate demand.
Das noted that enabling conditions for a revival of investment activity are also falling into place. The production of capital goods remained above the pre-pandemic level for the third month in a row during September, while imports of capital goods increased by double digits during October for the eighth consecutive month. The Central Government's relaxation of additional market borrowings by states equivalent to 0.5 per cent of gross state domestic product (GSDP) subject to certain capex related milestones and the decision to front-load tax devolution are likely to bolster capital outlays of the states. The government's focus on capex should crowd in private investment, which has remained in a prolonged state of muted activity. Further, there has been significant deleveraging of corporate balance sheets amidst congenial monetary and financial conditions engendered by the Reserve Bank's liquidity measures.
The recovery that had been interrupted by the second wave of the pandemic is regaining traction, but it is not yet strong enough to be self-sustaining and durable. This underscores the vital importance of continued policy support. Downside risks to the outlook have risen with the emergence of Omicron and renewed surges of COVID-19 infections in a number of countries. Besides, notwithstanding some recent corrections, headwinds continue to be posed by elevated international energy and commodity prices, potential volatility in global financial markets due to a faster normalisation of monetary policy in advanced economies, and prolonged global supply bottlenecks. The projection for real GDP growth is retained at 9.5% in 2021-22 consisting of 6.6% in Q3 and 6% in Q4 of 2021-22. Real GDP growth is projected at 17.2% for Q1:2022-23 and at 7.8% for Q2:2022-23.
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