India’s economy may take years to regain lost output: RBI MPC member

The government and the RBI may have put up a brave front on India’s economic situation but the monetary policy committee (MPC) minutes released on Friday do not paint as optimistic a picture.

A key member’s submission to the latest MPC meeting held earlier this month says India’s economy may take years to regain its lost output due to the coronavirus pandemic.

“The Covid curve is arching inwards, from the cities where infections had hitherto festered, into interior regions. The fear of a second wave looms over India; already it has forced lockdowns across Europe, Israel and Indonesia, and India, with the second highest caseload of infections and over-stretched healthcare infrastructure, cannot be immune,” MPC member Michael Patra said in his submission, the minutes shows.

"If the projections hold, the level of GDP would have fallen approximately 6% below its pre-Covid level by the end of 2020-21 and it may take years to regain this lost output. There is also an anecdotal sense that the economy’s potential output has fallen, and the post-Covid growth trajectory will look very different from what has been recorded so far. Changes in social behaviour and norms of commercial and workplace engagements may accentuate this structural change," he said.

The MPC meeting was held between October 7 and 9.

The RBI Governor Shaktikanta Das had earlier assured that Indian economy was on the “doorstep of revival” after the impact of pandemic as many financial entities have already raised capital and others are planning to do so.

Earlier this month, Finance Minister Nirmala Sitharaman had said that the economy was on the path to recovery, going by the feedback she received from the states and from industrialists who told her they had almost reached the pre-Covid capacity utilisation levels.