India’s GDP growth in 2020-21 is likely to remain in the negative category, said Reserve Bank of India Governor Shaktikanta Das on Friday, adding that some pick-up could be seen in the second half of the year.
Das announced that the RBI MPC has decided to reduce the repo rate by 40 basis points to 4 percent from the 4.4 percent earlier. The central bank also cut the reverse repo rate by 40 bps to 3.35 percent.
He said the global economy is heading into recession. He also said inflation outlook is “highly uncertain”.
“Domestic economic activity has been impacted severely by the two-month lockdown,” he said and added that the top-six industrialised states that account for 60 percent of India’s industrial output are largely in red and orange zones.
He said high-frequency indicators point to collapse in demand, and there is a plunge in demand for electricity and petroleum productions.
The biggest blow is to private consumption that accounts for 60 percent of domestic demand, the governor said.
Das said the combined impact of demand compression and supply disruption will depress economic activity in the first half of the current fiscal.
“Assuming that economic activity gets restored in a phased manner in the second half of this year and taking in consideration favourable base effect, it is expected that combined fiscal, monetary and administrative measures currently undertaken by both the government and RBI create conditions for gradual revival of activities in the second half of 2020-21.
“GDP growth in 2020-21 is estimated to remain in the negative territory with some pick up in growth impulses in the second half of 2020-21 onwards,” he said.
On inflation, Das said headline inflation may remain firm in the first half of the current financial year, and ease in the later part of the year.
While addressing a press conference, Governor Das said that an off-cycle meeting of the monetary policy committee was conducted for the past three days.