Reserve Bank Deputy Governor Dr Michael Debabrata Patra, during a speech at the Financial Markets Summit of the Confederation of Indian Industry, Mumbai, today, said the Indian economy is emerging from the second wave of the pandemic. It is, however, a scarred but resilient relative to the first wave's experience, he said.
He also assured the recovery appears broad-based and the pivot is manufacturing. "But the output is still below pre-pandemic levels, especially in contact-based services," he said.
Patra spoke on 'the role of financial markets in building India' at the event. He said financial markets, cosseted by massive and prolonged monetary and fiscal stimuli to a point where they are far out of connecting with the real economy, are now on edge, trying to second guess the start of normalisation.
Talking about inflation, Patra said it's moderating from the shock spike of May. "But core inflation is sticky at still elevated levels."
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He said the RBI's stance of "as long as necessary" accommodation on monetary policy on the back of ample liquidity in the system. Net surpluses of close to Rs 9 lakh crore are being absorbed by the RBI on a daily basis, he added.
Patra said the economic outlook is "overcast" with the pandemic. He said future waves may have to be navigated on the voyage beyond into a world that can live with COVID-19 without loss of life and livelihoods.
"On this journey, the course of monetary policy will be shaped by how the outlook for growth and inflation evolves."
He said for the economy as a whole, the output gap -- which measures the deviation of the level of GDP from its trend - is negative and wider than it was in 2019-20.
The MPC remains committed to its primary mandate of price stability, he said. The price stability is numerically defined as 4 per cent with a tolerance band of +/- 2 per cent around it.
Confronted with a once-in-a-century pandemic, the MPC had to tolerate higher average inflation of 6.2 per cent in 2020-21. "The envisaged glide path should take inflation down to 5.7 per cent or lower in 2021-22, to below 5 per cent in 2022-23, and closer to the target of 4 per cent by 2023-24," he said.