Expect Economic Growth to Contract 9.5% in Current Financial Year, Says India’s Apex Bank

Since the outbreak of the COVID-19 pandemic India’s apex bank, the Reserve Bank of India, has infused liquidity worth $125 billion into the economy to stabilise financial markets. Central banks the world over have pumped $9 trillion into the global economy amid the pandemic.  

India’s apex bank RBI on Friday said the country’s economic growth, measured as Gross Domestic Product (GDP), is likely to contract by 9.5 percent in the current financial year (April 2020-March 2021).

The growth projections were made by the Reserve Bank of India (RBI) Governor Shaktikanta Das while announcing the key lending rates, which remained unchanged at 4 percent.  

“For the year 2020-21 as a whole, therefore, real GDP is expected to decline by 9.5 percent, with risks tilted to the downside. If, however, the current momentum of upturn gains ground, a faster and stronger rebound is eminently feasible”, Das said while announcing the monetary policy.

India’s top banker maintained that GDP growth may “break out of contraction and turn positive” in January-March 2021.

The nation’s GDP growth contracted by a whopping 23.9 percent in the April-June period of the current financial year due to the coronavirus pandemic.

Between April and June, India was under a strict lockdown enacted by the Modi government in an effort to curb the spread of COVID-19.

The lockdown deeply affected the Indian economy, which had been slowing down even before the pandemic began.

Global agencies too have forecast GDP contraction in India for the current financial year. 

The World Bank this week said the country’s GDP is expected to contract by 9.6% in the current financial year.

Goldman Sachs earlier noted India’s economy would shrink by 14.8 percent, while India Ratings maintained that the economy would see a negative growth of 11.80 percent.     

Meanwhile, India’s apex bank has assured market participants about adequate liquidity and announced several measures on the money supply front.

“Market participants should be assured that in keeping with the monetary policy stance announced today, the RBI will maintain comfortable liquidity conditions and will conduct market operations in the form of outright and special open market operations”, the RBI chief said.  

“In response to feedback from market participants, the size of these auctions will be increased to $2.73 billion”, Das added.

Among the other liquidity measures announced include targeted long-term repo operations worth $13.69 billion, which ensures the availability of cheaper funds linked to benchmark rates.

The apex bank also announced that intends to buy bonds from the state governments.


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