The government imposed a nation-wide lockdown on March 25 to combat the pandemic. The lockdown was partially lifted and then re-imposed by certain states to check the spread of coronavirus infections.
According to RBI’s annual report, high frequency data so far point to a retrenchment in activity that is unprecedented in history.
“The upticks that became visible in May and June after the lockdown was eased in several parts of the country, appear to have lost strength in July and August, mainly due to reimposition or stricter imposition of lockdowns, suggesting that contraction in economic activity will likely prolong into Q2,” it noted.
The National Statistical Office is scheduled to release its estimates of gross domestic product (GDP) for the first quarter of this fiscal on August 31.
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RBI did not give out economic growth projections in the annual report as is usual.
Growth was slowing even before the outbreak of the pandemic. India’s GDP growth of 4.2 per cent in 2019-20 was the lowest since the global financial crisis more than a decade ago.
The central bank said demand in the economy will take quite some time to mend and regaining pre-COVID levels will have to be fuelled by government consumption.
In its report, RBI also said that “deep-seats and wide-ranging” reforms are needed to regain losses and return to the path of sustainable economic growth.
“An assessment of aggregate demand during the year so far suggests that the shock to consumption is severe, and it will take quite some time to mend and regain the pre-COVID-19 momentum,” the central bank said.
Private consumption has lost its discretionary elements across the board, it said, adding that transport services, hospitality, recreation, and cultural activities were particularly affected in the economy, where consumption accounts for some 60 per cent of the GDP.