Mumbai: The economy is gaining traction with gradual pick up in manufacturing activity and moderation in contraction of services, spurred by comfortable liquidity conditions, an RBI article on Tuesday said.
Observing that the retreat of the second wave of coronavirus pandemic has been slow, the RBI in an article on the ''State of Economy'' said, the aggregate demand conditions are buoyed by the release of pent-up demand post unlock, while the supply situation is improving with the monsoon catching up to its normal levels and sowing activity gaining pace.
"Reaffirming the traction that the economy is gaining, the manufacturing activity is gradually turning around, while contraction in services has moderated. Spurred by comfortable liquidity conditions, financial conditions stay benign and supportive of the recovery," it said.
It has been authored by team lead by RBI Deputy Governor Michael Debabrata Patra. The central bank said views expressed in the article are those of the authors and do not necessarily represent the views of the Reserve Bank of India.
E-way bill collections rose to their highest level in the last four months, clocking a growth of 17.3 per cent sequentially over June 2021. Normalised to February 2020 levels, E-way bills, both intra-state and interstate, surpassed pre-pandemic levels. In August so far (up to August 8, 2021), daily average E-way bills declined sequentially by 5.8 per cent, with implications for GST collections going forward.
Also toll collections rebounded in July, nearing the March 2021 record when Fastag was made mandatory.
As per the article, fuel consumption recorded an uptick in July 2021. While the consumption of petrol reached pre-pandemic levels and aviation turbine fuel (ATF) recorded a sequential improvement, diesel consumption slipped marginally.
On the price rise front, the article said the headline CPI inflation for July 2021 came in at 5.6 per cent, down 70 bps from 6.3 per cent a month ago and "reinforcing the view that the recent upsurge has peaked and the worst would be behind us".
Further, high frequency food price data from the Department of Consumer Affairs indicate an uptick in cereal prices in August so far. Prices of pulses, on the other hand, continue to soften. Edible oil prices are seeing some pressures. Among key vegetables, prices of potatoes, onions and tomatoes saw some seasonal increase in prices, it said. On the the recent enactment of amendments to the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act, the article said it is a major step towards ameliorating depositor distress.
"Henceforth, when a bank faces stress, its depositors will be able to get back their deposits up to Rs 5 lakh within 90 days. This is a significant change. It enhances the mandate of the DICGC from a limited pay-box function to pay-box plus one which will boost public confidence in the banking system. This augurs well for consumer protection and overall financial stability," it said.
On central bank digital currency (CBDC), a fiat liability denominated in the national unit of account that is digitally issued and accessible to all economic agents, the article said "there is a quiet confidence within that its time is nigh".
The authors said the CBDC may not directly replace demand deposits held in banks and will complement physical cash. It would compete with other online and offline payment methods and thereby support a more resilient and diverse payment system while shunning the risks associated with private digital currencies. The RBI is conscious that the CBDC has to be meticulously planned, designed and tested, they said.
Meanwhile, the newly created small finance banks (SFB) are serving the intended marginalised and under-served people, and doing so profitably, an analysis by RBI officials has revealed.
This category of banks was started in 2017, and a bulk of the entities are microfinance institutions, which converted themselves into lenders, which gave them access to public deposits. The SFBs have been provided license with the objective to serve the under-served and marginalised sections of the society preliminary analysis reveals SFBs to be leading in serving the priority sector, the paper by Nitin Kumar and Sarita Sharma said.
Moreover, The extent of price rise of food items remained relatively modest in the second wave of the coronavirus pandemic as compared to the first wave mainly on account of better supply management by the governments, said an RBI article.
The article, which is based on the retail and wholesale prices of 22 food items during the COVID period, showed that mark-ups increased on average during the first nation-wide lockdown period of March-May 2020 and persisted even during the subsequent unlocking phase, driven predominantly by market centres which faced high-intensity lockdowns as measured by the mobility indices.
Pulses and edible oils registered an uptick in margins due to continued tight supply demand conditions, although of relatively lower magnitude, while margins fell in case of cereals and vegetables, reflecting the less stringent nature of lockdown as well as better supply management by the governments during the second wave, it said.