Indias GDP Growth in 2020-21 Expected To Remain In Negative: RBI Governor

As global economy heads into recession, India’s GDP growth in 2020-21 is expected to remain in the negative with some pick up in second half, Reserve Bank of India Governor Shaktikanta Das said on Friday.

“We expect normalcy to return in the second half of the year as more relaxations are announced. Much will depend on how the Covid-19 curve flattens,” Das said.

Das said the RBI had cut the repo rate by 40 basis points from 4.4 % to 4% while the reverse repo rate was reduced to 3.35%.

Das said the central bank’s Monetary Policy Committee (MPC) had voted to maintain its “accommodative” stance.

India is seeing collapse of demand, dip in petroleum product consumption and fall in private consumption, the RBI Governor.

“The combined impact of demand compression and supply disruptions will depress economic activity in the first half of the year,” Das said.

“Given all the uncertainties, GDP growth in 2021 is expected to remain in the negative territory with some pick-up in growth impulses being seen in H2 2021 onwards,” he added.

Das also highlighted rising food price pressures from supply disruptions but said the MPC expects inflation to eventually fall below its medium-term target of 4% later in the year.

The country went into the coronavirus pandemic amid falling growth and a sharp contraction in demand - both of which have been worsened by the pandemic.

Das said industrial production shrank by close to 17% in March with manufacturing activity down by 21%. Output of core industries contracted by 6.5%.

“India’s foreign exchange reserves have increased by 9.2 billion during 2020-21 from 1st April onwards. So far, up to May 15, foreign exchange reserves stand at 487 billion US dollars,” the RBI Governor said.

The RBI extended a moratorium for borrowers from banks and finance companies on loan repayments by a further three months to August 31.

India’s banks, already saddled with more than $100 billion of bad loans, are expected to face a fresh bout of bad debt due to the COVID-19 pandemic as businesses default, Reuters said.