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Vaccination Push Has Brightened Near-Term Prospects Of Economy, Says RBI

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Vaccination Push Has Brightened Near-Term Prospects Of Economy, Says RBI

Aggressive vaccination push has brightened near term economic prospects, RBI has said

The near-term prospects for the Indian economy have brightened with the tapering of the second wave as well as aggressive vaccination push, is what the Reserve Bank of India (RBI) has observed in its monthly bulletin for July 2021, while commenting on the overall state of the economy.

At the same time though, it has noted that a substantial increase in aggregate demand has not happened, even though various high frequency indicators have shown a recovery.

On the other hand, the central bank’s bulletin said that agricultural conditions are favourable with monsoon’s revival, however the second wave has adversely impacted the revival of manufacturing and services sectors.

“A pick-up in inflation is driven largely by adverse supply shocks and sector-specific demand-supply mismatches caused by the pandemic,” the bulletin said.

These factors should ease over the year as supply side measures take effect, it noted.

Monetary policy transmission in the country is the second key area under focus in RBI’s bulletin, where it has said that transmission of policy repo rate changes to deposit and lending rates of scheduled commercial banks (SCBs) has improved substantially since the introduction of external benchmark linked lending rate (EBLR) regime in October 2019.

“Data collected from banks suggest that the share of outstanding loans linked to external benchmark in total floating rate loans has increased from as low as 2.4 per cent during September 2019 to 28.5 per cent by the end of 2020-21,” it said.

The third main focus of RBI bulletin is on the pharmaceutical exports, where it has observed that the Indian pharmaceutical industry is currently heavily dependent on its imports of active pharmaceutical ingredients (APIs), especially from China, despite having domestic research and development (R&D) potential through various channels such as joint ventures and domestic capacity improvements.

It has suggested that timely diversification of imports of raw materials and a long-term approach towards R&D is required for elevating the sector’s global position.

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