India has witnessed a recovery in economic activitytaking a path that is deviating from global developments even as its rural demand release, Reserve Bank of India he said in his monthly newsletter.
Manufacturing and services continue to expand with optimism about demand parameters and a rebound in consumption and business confidence, runs batted in he said in a note prepared by his economic and political research team.
“Renewed emphasis on public investment through infrastructure development is expected to attract private investment and strengthen job creation and demand in 2022-23,” RBI said in the note on the state of the economy.
However, there are signs of a decline in rural demand, even as conditions in the agricultural sector remain strong, the note added.
Indian economic activity recovers from a brief period of moderation in January due to the less virulent effects of the Omicron variant from COVID-19.
Overall consumer and business confidence remained resilient, unlike the first two waves, thanks to the accelerated pace of vaccination, better prospects for the general economic situation, household income and spending.
RBI said that while continued accommodative monetary policy helped revive economic activities, global spillover effects from higher commodity prices, persistent supply chain bottlenecks and uncertainties have led to a tightening of financial conditions.
Excess liquidity in the banking system moderated, with daily net liquidity absorption under the liquidity adjustment facility averaging Rs 6.4 lakh crore in the second half of January to February 14, 2022, less than Rs 7 crore lakh during Dec 2021 till mid Jan 2022.
The global economy is at an inflection point with spikes in inflation and the potential for policy tightening and rising rates dampening investor confidence. This could destabilize capital flows and prevent embryonic recovery in the future.
“Despite this unstable global environment, the domestic economic situation continues to improve. The 2022-23 Union Budget and the February 10, 2022 monetary policy announcement have set the tone for a broad-based and lasting revival,” the note said.