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    RBI's state of the economy report for March bulletin: Here are a few takeaways

    RBI's state of the economy report for March bulletin: Here are a few takeaways

    RBI's state of the economy report for March bulletin: Here are a few takeaways
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    By CNBCTV18.com  IST (Published)


    In terms of India, the central bank said there was “a restless urgency in the air in India to resume high growth, with signs that the capex cycle is uncoiling and turning, and earnings results of corporates having beaten market expectations”.

    The Reserve Bank of India (RBI) on Friday released state of the economy report for the March bulletin.  In the report, the RBI wrote that though the global economy is trying to regain lost momentum, bond vigilantes could, however, undermine the recovery, unsettle financial markets and trigger capital outflows from emerging markets.
    In terms of India, the central bank said that there was "a restless urgency in the air in India to resume high growth, with signs that the capex cycle is uncoiling and turning, and earnings results of corporates having beaten market expectations”.
    Here are a few other key takeaways from the report:
    Vaccine shots for poor countries
    Thanks to India, Ghana became the first country to receive a vaccine through COVAX programme, a global coalition backed by the World Health Organisation (WHO) to distribute free doses to poor countries. As on March 16, a total of 5.9 crore vaccines have been exported to 70 countries. Of those, 81 lakh are free doses sent to 20 nations, and 1.65 crore under COVAX. India has also announced a gift of 2 lakh doses for the UN peace keeping forces.
    State of the economy
    The Organisation for Economic Co-operation and Development (OECD) in its interim economic outlook report, released on March 9, forecast that India would be the fastest growing economy in 2021 and 2022. In its view, economic activity in India has moved above pre-pandemic levels in spite of vulnerability to risks from the spread of new variants of the coronavirus.
    According to the report, there are signs that the capital expenditure of the union government is uncoiling and turning. First, the capital expenditure recovered from a year-on-year decline of 11.6 percent during the 6-months ending September 2020, and made a sharp turnaround, growing by 144.7 percent between October 2020 and January 2021.
    Second, provisional monthly accounts for 20 states show that capital expenditure (net of loans and advances disbursed) has gradually recovered to pre-pandemic levels beginning October 2020, with December and January registering robust growth of 28.4 and 23.9 percent, respectively. Till mid-March, nine states have presented their budgets for 2021-22, in which their combined capital expenditure is 35.7 per cent, above the revised estimates for 2020-21.
    Third, quarterly results for the quarter ending December 2020 point to signs of revival of key capital goods producing firms, with revenue growth steadily improving. Infrastructure firms have also recorded a healthy expansion in order books, with demand from transmission, distribution, green energy business, roads and highways, railways and metro services.
    In February 2021, CPI inflation was at 5.0 percent, registering an increase of 97 basis points (bps) from January 2021 reading of 4.1 percent. A sharp increase in food and core inflation were the key drivers of the surge in headline inflation in February. Food inflation increased to 4.3 percent in February from 2.7 percent in January. Inflationary pressures were visible in edible oils, protein-based food and non-alcoholic beverages. Cereal prices moved into deflation. Pan, tobacco and intoxicants and transport and communication saw double-digit inflation.
    Monetary policy framework
    On February 26, the RBI released the report on currency and finance, reviewing India’s monetary policy framework. According to the report, monetary transmission has been full and reasonably swift across the money market but less than complete in the bond markets. While there has been an improvement in transmission to lending and deposit rates of banks, external benchmarks across all categories of loans and deposits could improve transmission further.
    Agriculture growth
    Agriculture growth accelerated to 3.9 percent in the quarter ending December 2020 on account of robust growth in kharif production. With the rabi season nearing to a close, the agriculture sector is set to harvest a bumper crop. Blessed by normal monsoon and procurement policy support, food grain production has touched 303.3 million tonne, 2 percent higher than the final estimates of a year ago. The report stated that food grains have beaten record production levels for the fifth consecutive year in a row.
    Horticulture has also registered a sharp rebound in production and acreage, outpacing the food grain production since 2012-13. In 2020-21, the production of horticultural crops has been pegged at a record 326.6 million tonne, 1.8 percent higher than the final estimates of 2019-20. Production estimates for aromatics, medicinal plants and plantation crops have also been pegged higher than the previous year by 10.6 percent.
    Among the top vegetables (Tomato, Onion, Potato), production of potatoes and onions has jumped by 9.4 percent and 0.8 per cent, respectively, spurred by increased acreage. But tomato production has fallen by 4.8 percent, despite an increase in acreage, on account of the price crash during the lockdown, leading to lower realisation by farmers.
    Digital payment
    In February 2021, Real Time Gross Settlement (RTGS)-led wholesale transaction volume edged up 18.4 percent year-on-year, 4 percentage points over the previous month. In the retail segment, the volume and value of National Electronic Funds Transfer (NEFT) transactions maintained a healthy momentum at 13.6 percent and 15.1 percent, respectively.
    The Unified Payment Interface (UPI) remained the mainstay of the digital ecosystem, with its volume remaining above the 2-billion mark for the fifth successive month. National Electronic Toll Collections (NETC) hit 44.3 percent and 38.8 percent growth in volume and value terms, respectively, in the month following the move to make FASTags mandatory from February 16, 2021.
    Getting on the digital bandwagon, the first paperless Union Budget 2021 allocated Rs 1,500 crore to boost the adoption of digital modes of payment. Furthermore, a FinTech Hub has been proposed to be set up in Gujarat International Finance Tec-City (GIFT City). Market research shows that amidst the pandemic, India saw a 60 percent increase in FinTech investments and surpassed China by clocking 33 FinTech fundraising deals worth $647.5 million.
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