The Winter of Our Discontent Will be Made Glorious Summer: RBI January Bulletin

Reserve Bank of India’s monthly bulletin highlights that India’s economic recovery is getting stronger based on incoming high-frequency data. The paper further states that if the growth momentum continues and inflation remains benign, there could be room for policy action to support growth.

“Recent high frequency indicators suggest that the recovery is getting stronger in its traction and soon the winter of our discontent will be made glorious summer,” said the RBI.

The paper has come at a time when the Central bank has started normalizing the liquidity in the money markets by draining out the surplus it had pumped in to keep the economic crisis at bay during the COVID-19 times.

Pointing particularly to the rise in trade activity, the paper said that the number of e-way bills issues in December 2020 was the highest, “suggesting that the recovery is no longer aloft on the fleeting tailwinds of festival spending but is rising Phoenix-like on the wings of an intrinsic momentum,” the RBI said.

The RBI further said that the domestic spending is normalizing rapidly, and the collections under the GST surged to an all-time high in December.

“Business activity is regenerating in an ‘unlock’ mood, incentivised in substantial measure by a simplified return filing system. Consumer confidence is regaining its groove,” it said. The Refinitiv-Ipsos consumer sentiment index inched by 2.1 percentage points in December, the paper mentioned.

The paper said with GDP in striking distance of attaining positive territory and inflation easing closer to the target, policy space could open up to further support the recovery, if these moments sustain. It further said that an early revival in investments will be critical to secure a durable turnaround and sustainable growth. India must also look for ways in which idle cash in the balance sheets of the corporations and banks, and reverse repo balances with the RBI find their way as credit to the productive sectors and into real spending on investment activities.

The report asked in conclusion, “Will the Union Budget 2021-22 be the game-changer?” With the Finance Minister Nirmala Sitharaman going to present Budget on February 1, 2021, all eyes are on her.