As per the Reserve Bank of India’s latest monetary policy report, domestic economic activity is broadly expected to rebound strongly in 2021-22. Taking the baseline assumptions, the survey of professional forecasters indicators, and model forecasts into account, the real GDP growth is forecasted to pick up from (-) 8.0% in 2020-21 to 10.5% in 2021-22.

The GDP growth is expected to have a quarterly path of 26.2% in Q1, 8.3% in Q2, 5.4% in Q3, and 6.2% in Q4 having evenly balanced risks. Rapid vaccination drive followed by the large pent-up demands and the investment enhancing measures taken by the government, with better external demand contributes as an upside to the baseline growth path. Yet, the swell in infections, incoming of new mutants, higher crude oil, and non-oil commodity prices, and the deviation of southwest monsoon from the expected assumption of a normal monsoon, followed by the global financial market volatility imparts downside risks to the baseline growth path. As per the report, for 2022-23, assuming a normal monsoon and no major exogenous or policy shocks, the structural model evaluations show real GDP growth at 6.8%, having quarterly growth rates in the range of 6.2-7.3%. CPI inflation is forecasted to average 5.0% in Q4:2020-21, 5.2% in Q1:2021-22 and Q2, 4.4% in Q3, and 5.1% in Q4, with broadly balanced risks.

Persisting interruptions in the supply chain, with rising global crude oil prices, and a stronger pass-through of input costs may push the headline inflation beyond the baseline. The probability of softer international crude oil prices on the back of a weaker than anticipated global demand, bountiful food grain production, and effective supply management coming together to ease inflation is also expected. The report perceived that developing Covid-19 trajectory and progress on vaccination remain the key drivers of economic activity and inflation, in India as well as globally.