Inflation remained high during 2020-21- RBI

The Reserve Bank of India has said that India joined the global economy in an unprecedented contraction in 2020-21, dragged down by the COVID-19 pandemic, headline inflation was elevated for most part of the year led by supply chain disruptions due to the pandemic and spikes in key food prices. In its annual report for 2020-21, which it released on Thursday, the RBI noted that the pandemic itself, especially the impact and duration of the second wave, is the biggest risk to this outlook, the central bank has noted in its annual report.

Yet at the same time, it has said that "upsides also stem from the capex push by the government, rising capacity utilisation and the turnaround in capital goods imports. For April and early May 2021, available high frequency indicators present a mixed picture". While mobility and sentiment indicators have moderated, several activity indicators have held their own and shown resilience in the face of the second wave, RBI has observed. The report said that inflation moderated subsequently due to seasonal easing in food prices since December 2020, albeit with an upside push from adverse base effects during February-March 2021.

"On the external front, the sizeable contraction in imports relative to exports, under deep recessionary conditions, led to a current account surplus; along with robust net capital inflows, this led to a large build-up of foreign exchange reserves," the RBI said. "Monetary and credit conditions remained expansionary and financial market conditions eased considerably on the back of abundant liquidity," it said further while reviewing the year gone by.