RBI pegs GDP growth at 9.5%, inflation at 5.3% for 2021-22

Mumbai [India], December 8 : India's Gross Domestic Product (GDP) is expected to grow by 9.5 per cent and consumer price inflation is projected to remain at 5.3 per cent in the current financial year, the Reserve Bank of India (RBI) said on Wednesday.
The economy is projected to expand by 6.6 per cent in the third quarter and by 6 per cent in the fourth quarter of 2021-22. So far, the official figures for the first two-quarters of the current fiscal have been released. The GDP expanded by 20.1 per cent during the first quarter and 8.4 per cent in the second quarter of 2021-22, year-on-year. The positive growth numbers come after a sharp contraction recorded in 2020-21.
"The NSO's release on November 30, 2021, confirmed that the recovery of the Indian economy is gaining traction, with real GDP growth at 8.4 per cent, year-on-year, for Q2 2021-22 subsequent to 20.1 per cent in the preceding quarter. All components of GDP registered y-o-y growth, with exports and imports strongly surpassing their pre-COVID levels," RBI Governor Shaktikanta Das said after the bi-monthly policy review meeting.
The economic growth is projected to remain strong in 2022-23. The real GDP growth is projected at 17.2 per cent in the first quarter of the financial year beginning April 2022 and 7.8 per cent in the July-September quarter of 2022-23.
"The recovery that had been interrupted by the second wave of the pandemic is regaining traction, but it is not yet strong enough to be self-sustaining and durable. This underscores the vital importance of continued policy support," said Das.
Inflation is expected to remain in the RBI's target range of 4-6 per cent. Consumer Price Index (CPI) inflation is projected at 5.3 per cent for the financial year 2021-22. During the third quarter of the current financial year, CPI inflation is expected to remain at 5.1 per cent. During the fourth quarter, it is projected to increase to 5.7 per cent. CPI inflation is then expected to ease to 5 per cent in the first quarter of 2022-23 and stay at 5 per cent in the second quarter of 2022-23.
Headline CPI inflation rose marginally to 4.5 per cent in October 2021 from 4.3 per cent in the previous month. Consumer price-based inflation has risen in recent months led by the spike in vegetable prices due to unseasonal rains in some parts of the country. Hardening international energy prices have kept domestic LPG and kerosene prices elevated for nearly three quarters, edging up fuel inflation to 14.3 per cent in October.
The persistence of high core inflation (i.e., CPI inflation excluding food and fuel) since June 2020 is an area of policy concern in view of input cost pressures that could rapidly be transmitted to retail inflation as demand strengthens. In this context, the reduction of excise duty and VAT on petrol and diesel will bring about a durable reduction in inflation by way of direct effects as well as indirect effects operating through fuel and transportation costs.
Vegetable prices are expected to see a seasonal correction with winter arrivals in view of bright prospects for the rabi crop. Supply-side interventions by the Government have limited the fallout of continuing high international edible oil prices on domestic prices. Though crude oil prices have seen some correction in the recent period, a durable containment of price pressures would hinge on strong global supply responses to match the pick-up in demand as pandemic restrictions ease.
"Cost-push pressures continue to impinge on core inflation, though their pass-through may remain muted due to the slack in the economy. Over the rest of the year, inflation prints are likely to be somewhat higher as base effects turn adverse; however, it is expected that headline inflation will peak in Q4:2021-22 and soften thereafter," the RBI Governor said.
On the impact of the new Coronavirus strain on the economy, Das noted: "Downside risks to the outlook have risen with the emergence of Omicron and renewed surges of COVID-19 infections in a number of countries. Besides, notwithstanding some recent corrections, headwinds continue to be posed by elevated international energy and commodity prices, potential volatility in global financial markets due to a faster normalisation of monetary policy in advanced economies, and prolonged global supply bottlenecks."