The pandemic-induced lockdown which almost brought the economy to a virtual standstill which impacted the economy from the supply side is now seeing demand side pressures. "Income and job losses due to the Covid 19-driven shutdown, have generated a demand problem in an economy traditionally limited by supply constraints" said a report by BofA Securities.
The report said among the three certain developments post COVID besides soft lending rates and forex reserves build-up will be that the recovery will be driven by consumption. " There is a recovery. The recovery will be largely driven by consumption" said Indranil Sengupta, chief India economist at BofA Securities. "But the pace of the recovery would depend on what is the degree of vaccine roll-out" .
On the policy front, especially in the forth-coming budget, the focus is expected on demand-side measures. " We expect the government to create demand by giving more money in the hands of the people by cutting taxes at the lower end, or by recapitalizing banks or by raising infrastructure bonds so that things starts moving and jobs start coming back" said Sengupta.
Oil excise duty could be cuts to reduce retail prices and support consumer demand. These demand boosting measures could be funded by likely COVID-19 cess on higher income groups and has pegged the centree's fiscal deficit for FY'22 at 5 per cent of GDP, down from an estimated 7.9 per cent in Fy'21.
The report also highlights, besides facilitating softer lending rates that RBI will consolidate adequate forex reserves by adopting an asymmetric policy of buying forex when the US dollar weakens and allowing the rupee to depreciate when it strengthens.
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2 Comments on this Story
Zillionaire 2 days ago
gdp growth will be well over 10% on 2921 and 2022. cheers desis India is greatð
Gaurav2 days ago
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