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Outlook
4.1 Outlook
Global economic recovery is gaining traction and witnessed a V shaped recovery due to
unprecedented policy support in 2020. Vaccines and drugs for therapeutic use are available to
protect the people from the repeated onslaught of the virulent coronavirus with new variants.
Riding on the success of ultra-accommodative monetary and fiscal policies, the global output
growth is projected at 5.7 per cent in 2021. However, the growth is concentrated in a few
major economies, with most emerging market and developing economies (EMDEs) lagging.
Though the growth recovery is uneven across the globe, the rate of inflation is uniformly
above the benchmark level across the countries. Many Central Banks find it difficult to pursue
ultra-accommodative monetary policy as retail inflation has reached/surpassed the tolerable
limit. The headline consumer prices in the US rose by 5 per cent in May and 5.4 per cent in
June 2021 which is well above the target of 2 per cent and Federal Reserve is expected to
normalise its monetary policy at the earliest. The European Central Bank is also contemplating
the tapering of its bond purchases to keep inflation around the 2 per cent target. The increase
in global inflation is being accompanied by a significant strengthening of global demand. In
some countries, supply disruptions, such as market and trade restrictions or curfews, appear
to have affected domestic food supply chains, increasing wholesale and retail markups, and
contributing to rising food price inflation.
The Indian situation is largely evolving global outlook however, the CPI inflation of 5.59
per cent during July 2021 is within the upper limit of the target range. The current inflation
is largely influenced by supply-side factors. High international commodity prices, rising
shipping charges and elevated prices of diesel and petrol are putting pressure on input prices.
Prices of several food items have risen too. Supply-chain constraints have also arisen out of the
COVID 19 related restrictions on movement of goods, and these are easing slowly. Over the
last few months, the Government has taken step to address the price rise in pulses, edible oils
as also the imported inflation. With declining infections, restrictions and localised lockdowns
across states could ease gradually and mitigate disruptions to supply chains, reducing cost
pressures. By considering these factors, CPI inflation is projected at 5.7 per cent during FY22.
4.2 Domestic Economy
India’s real GDP growth was revised from 10-12 per cent to 8-9.5 per cent in FY22, due to the
devastating second wave leading to local lockdowns in most parts of the country. However, the
Reserve Bank of India has extended its support for growth with an accommodative monetary
policy stance and an unchanged repo rate at 4 per cent since May 27,2020. The regulator
also ensured availability of adequate surplus liquidity in the system through Open Market
Annual Report 2020-21 | 253
4.1 Outlook
Global economic recovery is gaining traction and witnessed a V shaped recovery due to
unprecedented policy support in 2020. Vaccines and drugs for therapeutic use are available to
protect the people from the repeated onslaught of the virulent coronavirus with new variants.
Riding on the success of ultra-accommodative monetary and fiscal policies, the global output
growth is projected at 5.7 per cent in 2021. However, the growth is concentrated in a few
major economies, with most emerging market and developing economies (EMDEs) lagging.
Though the growth recovery is uneven across the globe, the rate of inflation is uniformly
above the benchmark level across the countries. Many Central Banks find it difficult to pursue
ultra-accommodative monetary policy as retail inflation has reached/surpassed the tolerable
limit. The headline consumer prices in the US rose by 5 per cent in May and 5.4 per cent in
June 2021 which is well above the target of 2 per cent and Federal Reserve is expected to
normalise its monetary policy at the earliest. The European Central Bank is also contemplating
the tapering of its bond purchases to keep inflation around the 2 per cent target. The increase
in global inflation is being accompanied by a significant strengthening of global demand. In
some countries, supply disruptions, such as market and trade restrictions or curfews, appear
to have affected domestic food supply chains, increasing wholesale and retail markups, and
contributing to rising food price inflation.
The Indian situation is largely evolving global outlook however, the CPI inflation of 5.59
per cent during July 2021 is within the upper limit of the target range. The current inflation
is largely influenced by supply-side factors. High international commodity prices, rising
shipping charges and elevated prices of diesel and petrol are putting pressure on input prices.
Prices of several food items have risen too. Supply-chain constraints have also arisen out of the
COVID 19 related restrictions on movement of goods, and these are easing slowly. Over the
last few months, the Government has taken step to address the price rise in pulses, edible oils
as also the imported inflation. With declining infections, restrictions and localised lockdowns
across states could ease gradually and mitigate disruptions to supply chains, reducing cost
pressures. By considering these factors, CPI inflation is projected at 5.7 per cent during FY22.
4.2 Domestic Economy
India’s real GDP growth was revised from 10-12 per cent to 8-9.5 per cent in FY22, due to the
devastating second wave leading to local lockdowns in most parts of the country. However, the
Reserve Bank of India has extended its support for growth with an accommodative monetary
policy stance and an unchanged repo rate at 4 per cent since May 27,2020. The regulator
also ensured availability of adequate surplus liquidity in the system through Open Market
Annual Report 2020-21 | 253
