Indian Economy on the Path of Expansion

The blanket lockdown of the whole India by the Government of India in response to the COVID19 pandemic has given a never seen before shock to the Indian economy. However, different economic indicators started indicating the revival of economic activities post gradual relaxations granted in the lockdown since May 2020 by different states. However for more than two quarters, things remained very difficult for the economy. Considering the fall in the aggregated demand in the economy, the government was forced to suspend the Insolvency and Bankruptcy Code (IBC) so that individuals and businesses could get enough time and space to adjust in the post pandemic recession and the events of defaults could be avoided. This single decision has been very helpful for the whole banking sector. Although it has adversely impacted the revenues of the banking sector but has been very helpful in dealing with the non-performing assets (NPA).

Growth to Drive the Monetary Policy in Indian Economy

Reserve Bank of India (RBI) assesses the prevailing economic conditions as well as the outlook along with the liquidity position in the Indian economy at an interval of two months in its bimonthly meeting of the monetary policy committee (MPC) to formulate the monetary policy for the economy. The meetings of the monetary policy committee are held at least four times in a year and its decisions are published after every such meeting.

The MPC in its recent meeting has decided to keep the benchmark policy repo rate unchanged at 4 percent despite the fact that the rate of inflation has remained above the upper threshold of 6 percent continuously for six months before CPI inflation falling to 4.6 percent in December 2020 due to sharp fall in the food inflation; however during the same period the core inflation largely remained on higher side of the threshold. The resolution of the meeting mentions that there remains the risk of elevated core inflation in the coming quarters. RBI has projected the CPI inflation of 4 percent within a band of +/- 2 percent with the confidence interval of 50 percent and expects it to remain around the upper threshold of 6 percent in short term (RBI, 2021). This clearly signifies that there are high possibilities of elevated levels of CPI in the coming months.

Budget 2021-22

Post lockdown, the way Indian economy has shown resilience with continued ‘V’ shaped recovery is very optimistic. It indicates that the Indian economy even after the pandemic shock is on a very strong footing (MoF, 2021c). This optimism in the environment has also been echoed by the stock market. However, it is very important that this optimism in the economy gets strong fiscal support with proper fiscal policy response as well as anchoring from the government in the present budget for the fiscal year 2021-22 to gain on the favourable monetary policy response from the Reserve Bank of India (RBI, 2021).