RBI sees GDP recovery stronger than expected

RBI chief said a comfortable external balance position, wherein India's forex reserves have risen to $572.7 billion as of November 13 or sufficient to cover a year's imports, have been a key source of resilience in recent months

Mumbai: After the 23.9 per cent GDP contraction in the April-June quarter following the Covid-19 pandemic, economic recovery momentum has been stronger than expected, Reserve Bank of India (RBI) Governor Shaktikanta Das said here on Thursday.

Das, however, said that we need to be watchful of the demand momentum sustaining after the festivities as well, and also warned of downside risks to growth coming from a rise in virus infections in select pockets. The heavy contraction in Q1 was attributed to the near-complete chilling of all economic activity in the wake of one of the strongest lockdowns enforced anywhere in the world. The RBI, which has introduced many unconventional measures to aid recovery apart from cutting key rates by 1.15 per cent, expects the economy to shrink by 9.5 per cent in FY21.

"After witnessing a sharp contraction in the economy by 23.9 per cent in Q1 and a multi-speed normalisation of activity in Q2, the Indian economy has exhibited stronger than expected pick-up in momentum of recovery," Das said, speaking at the annual day event of Foreign Exchange Dealers' Association of India (FEDAI).

"We need to be watchful about the possible reassessment of market expectations surrounding the vaccine," he added. Analysts at Icra, a rating agency, had earlier this week, raised doubts over the sustainability of demand and attributed the spurt to pent-up requirements following the lockdowns and also the festivities.