Recovery consumption based, shallow & short lived
Context: The Reserve Bank of India (RBI) has said the ongoing economic recovery is based on a revival of consumption, while the key thing is to whet the appetite for investment, especially the “missing” private investment.
- According to an RBI report, there is little doubt today that a recovery based on a revival of consumption is underway. The jury leans towards such recoveries being shallow and short-lived.
- All engines of aggregate demand are starting to fire; only private investment is missing in action. The time is apposite for private investment to come alive.
- The central bank said economic activity is gaining steam as Covid pandemic incidence recedes and the ongoing vaccine rollout releases pent-up optimism.
- In terms of nominal GDP, 96 per cent of pre-pandemic economic activity has been restored, assuming that the National Statistical Office’s first advance estimates hold.
- Early corporate results for Q3:2020-21 indicate that sales continue to improve as they rise out of contraction; combined with a fall in raw material costs and saving on account of lower interest expenses, there has been a jump in operating profits.
- It said pro-cyclical industries in the non-financial sector — auto, steel and cement — registered a sharp rebound in volumes, increase in output prices in a strong pricing environment and adopted cost cutting measures.
- According to the RBI, perceptions have improved significantly over all preceding rounds of RBI consumer confidence survey conducted since September 2020.