Pent-up demand aiding economy revival

The economy is gaining traction with gradual pick up in manufacturing activity and moderation in contraction of services, spurred by comfortable liquidity conditions, an RBI article on Tuesday said.

Observing that the retreat of the second wave of coronavirus pandemic has been slow, the RBI in an article on the 'State of Economy' said, the aggregate demand conditions are buoyed by the release of pent-up demand post unlock, while the supply situation is improving with the monsoon catching up to its normal levels and sowing activity gaining pace.

"Reaffirming the traction that the economy is gaining, the manufacturing activity is gradually turning around, while contraction in services has moderated. Spurred by comfortable liquidity conditions, financial conditions stay benign and supportive of the recovery," it said.

The article notes that with the cautious unwinding of restrictions by states, human mobility has risen to levels last seen in February 2021, prior to the onset of the second wave. Electricity generation readings, too, have recovered to peak levels seen in April 2021 and are closing on to the pre-pandemic level (July 2019). It has been authored by team lead by RBI Deputy Governor Michael Debabrata Patra.

The central bank said views expressed in the article are those of the authors and do not necessarily represent the views of the Reserve Bank of India. E-way bill collections rose to their highest level in the last four months, clocking a growth of 17.3 per cent sequentially over June 2021. Normalised to February 2020 levels, E-way bills, both intra-state and interstate, surpassed pre-pandemic levels. In August so far (up to August 8, 2021), daily average E-way bills declined sequentially by 5.8 per cent, with implications for GST collections going forward. Also toll collections rebounded in July, nearing the March 2021 record when Fastag was made mandatory. As per the article, fuel consumption recorded an uptick in July 2021. While the consumption of petrol reached pre-pandemic levels and aviation turbine fuel (ATF) recorded a sequential improvement, diesel consumption slipped marginally. On the price rise front, the article said the headline CPI inflation for July 2021 came in at 5.6 per cent, down 70 bps from 6.3 per cent a month ago and "reinforcing the view that the recent upsurge has peaked and the worst would be behind us". Further, high frequency food price data from the Department of Consumer Affairs indicate an uptick in cereal prices in August so far. Prices of pulses, on the other hand, continue to soften. Edible oil prices are seeing some pressures. Among key vegetables, prices of potatoes, onions and tomatoes saw some seasonal increase in prices, it said. On the the recent enactment of amendments to the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act, the article said it is a major step towards ameliorating depositor distress. "Henceforth, when a bank faces stress, its depositors will be able to get back their deposits up to Rs 5 lakh within 90 days. This is a significant change. It enhances the mandate of the DICGC from a limited pay-box function to pay-box plus one which will boost public confidence in the banking system. This augurs well for consumer protection and overall financial stability," it said.