RBI Revises Real GDP Growth Projection For 2020-21 To -7.5%

The Reserve Bank of India on Friday revised its growth projection for the country's real gross domestic product (GDP) for 2020-21. The central bank now expects the GDP growth at -7.5 per cent in the year ending March 31, 2021, in an upward revision from its earlier forecast of -9.5 per cent. "The second half (of 2020-21) is expected to show some positive growth," Governor Shaktikanta Das said in an online briefing at the end of the meeting of the Monetary Policy Committee.

The GDP estimates are in line with economists' expectation of a revision in the central bank's growth projections, following the better-than-expected contraction in the September quarter.

Going forward, the RBI has projected "(+)0.1 per cent in Q3:2020-21 and (+)0.7 per cent in Q4:2020-21; and (+)21.9 per cent to (+)6.5 per cent in H1:2021-22, with risks broadly balanced."

The economy contracted by 23.9 per cent in the first quarter and 7.5 per cent in the second quarter on account of the COVID-19 pandemic, and is on track to record its worst annual contraction in more than four decades. 

The central bank had estimated GDP to contract by 9.5 per cent in its assessment in October. 

The upward revision in the GDP projection comes days after the RBI Governor said the economy is showing a stronger-than-expected pickup in recovery, but one needs to be watchful of the sustainability of demand.

The latest economic projections also reinforce the government's view that the economy is in a V-shaped recovery.

The revised projection comes in the backdrop of the RBI's decision to maintain an "accommodative" policy stance in its fifth bi-monthly monetary policy for FY21.

The Reserve Bank of India's Monetary Policy Committee maintained the key lending rate unchanged at 4 per cent, holding the rates at existing levels for a third straight review.

Since May, the repo rate - or the key interest rate at which the RBI lends money to commercial banks - has been kept steady at a 19-year low of 4 per cent. The reverse repo rate - the rate at which the RBI borrows from banks - will continue to be 3.35 per cent.

Inflation has remained consistently above the upper end of RBI's mandated 2-6 per cent target range every month barring March this year while core inflation has also remained sticky. In October, retail inflation hit a more than six-year high due to higher food prices.