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RBI’s chicken soup for the economy’s soul

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The RBI’s state of the economy report enlists Franklin, Dostoyevsky, Paulo Coelho, Barack Obama, Shakespeare, and a number of lesser luminaries to drive home a message of relentless positivity

Source: Reuters

Back in January this year, RBI’s state of the economy report prognosticated that India will have a ‘glorious summer’. Seen in heartless hindsight, that remark was gloriously off the mark.

Has the devastating second wave of the pandemic changed the RBI’s tune? Well, it can hardly ignore reality. Its state of the economy report for April 2021 acknowledges the ‘ferocious rise of latest infections and mortalities’ and therefore the strained hospital facilities and vaccine supplies. But it then enlists the rather unlikely melange of Franklin, Dostoyevsky, Paulo Coelho, Barack Obama, Shakespeare, and a number of lesser luminaries to drive home a message of relentless positivity. Oh, it also has Valmiki.

Benjamin Franklin, says the state of the economy report, wont to say that energy and persistence conquer all things and once we strive to become better than we are, everything around us becomes better too.

Dostoyevsky, the guy who wrote ‘Crime and Punishment’ and ‘The Possessed’, is quoted by the report as saying that the key of man’s being isn't only to measure but to possess something to measure for. What then should we live for? The report clarifies: ‘India features a lot to measure for; among them is that the strong likelihood of being the world’s fastest-growing economy in 2021 and 2022.’

Paulo Coelho said there are some ways of going forward, but just one way of standing still. Barack Obama makes a cameo appearance within the report back to utter this homily: ‘hope within the face of difficulty. Hope within the face of uncertainty. The audacity of hope.’ Shakespeare talks of April’s spirit of youth.

If all this sounds a touch like ‘Chicken Soup for the economy’s soul’ from RBI, the state of the economy report also has Valmiki’s lyrical combat the monsoons, “the sky ‘will drink the waters of the ocean and provides birth to a liquid offspring, the elixir of life. The scorched earth will wear a robe of brilliant green.’ ’’ then, the report’s saying the forecast of excellent monsoons this year is that the ‘icing on the cake’ sounds rather flat.

What exactly is that the purpose of this quote fest? Infusing positivity into these dark times, of course. The message is to seem beyond the perilous present and transport ourselves into an excellent future. The report’s summation of the present horror show? ‘This too shall pass.’

What is the idea of the central bank’s positivity? It says, ‘It is noteworthy that economic activity in India is holding up admirably against COVID -19’s renewed onslaught. Much attention has been drawn to the wilting of incoming data within the face of the second wave and localized restrictions. Yet, it's important to notice that it's the sentiment indicators that have moderated. aside from contact-intensive sectors, activity indicators largely remained resilient in March and grew beyond pre-pandemic levels on the rear of strong momentum instead of statistical base effects.’ Yes, but that was in March. Isn’t this report alleged to provides a more up-to-date picture of the economy?

It is perfectly legitimate to supply optimistic combat the economy. There are signs that infections have peaked in some parts of the country. Analyzing seroprevalence surveys could yield some excellent news. A forecast about the pace of vaccinations would help. But the RBI report does none of that. It resolutely ignores the negatives—the lack of credit growth, or the downturn in industrial growth even before the second wave hit. All it does is say that the majority indicators were flashing green in March, but that was before the second wavelet loose havoc across the country. rather than analysis, the report offers bromides.

It is much more pessimistic when it talks of worldwide conditions, remarking that, ‘The near-term outlook remains fragile as rapid mutations of the virus, concerns over vaccine efficacy with reference to newer strains, mounting vaccine vacillation and uneven vaccine availability across economies pose downside risks. Furthermore, rallying commodity prices on demand-supply imbalances, alongside continued monetary and monetary support, entails upside risks for inflation, especially for EMEs, which squeezes policy headroom to support the recovery, going forward.’

To be fair, a couple of negatives on the domestic economy also slip through. The report says, as an example, that the growing infections and restrictions on businesses have ‘imparted high uncertainty to the outlook.’ It also warns that if the second wave isn't contained soon and therefore the restrictions linger, disruptions in supply chains could lead on to inflationary pressures.

It has the standard statutory warnings for bond vigilantes, remarking that GSAP 1.0, which it calls a Brahmastra, is simply the start, which suggests there are weapons bigger even than the Brahmastra in RBI’s arsenal. Its message for the bond markets is that they should hear central banks.

The writers of the state of the economy report know all right that it'd encounter as rather over the highest. that's why they assert, ‘one view is that we are too optimistic. Yes, confronted with a once-in-a-lifetime pandemic with no known cure thus far, with infections and deaths that have drawn comparison to the Spanish flu of 1918, we've dared to stay the religion and dream a few COVID-vanquished worlds.’

To those poetic words, they ought to perhaps have added a few of lines from Wordsworth, to form it truly epic: ‘And then my heart with pleasure fills/And dances with the daffodils.

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