The Indian economy continues to forge ahead, emerging out of the shackles of pandemic, according to the Reserve Bank of India’s latest monthly bulletin.

“The ongoing revival is driven by a confluence of factors, i.e. release of pent-up demand, government’s push for capital expenditure, robust external demand and normal monsoon,” an article published in the RBI Bulletin said.

“Faster resumption of contact-intensive services and speedy restoration of consumer confidence brightens near-term prospects. Going forward, the emergence of the Omicron strain has heightened the uncertainty in the global macroeconomic environment, accelerating risks to global trade with resumption of travel restrictions/quarantine rules at major ports and airports,” it added.

Tax collections growth

The bulletin, authored by RBI officials, said that Government finances have shown remarkable resilience to the second wave of the pandemic. “Tax collections have surpassed expectations, with all the major tax heads of Centre registering a robust growth in H12021-22. States’ tax collections have also exhibited a strong growth and reached the pre-pandemic levels in H12021-22,” it said.

“Despite the additional spending burden, government expenditure has broadly remained aligned with the budget estimates with a marked improvement in the quality of expenditure,” it said.

Going forward, while tax revenues are expected to remain buoyant, the general government fiscal deficit, which remained subdued in H12021-22, allows space for a pick-up in expenditure in the second half of the current fiscal year to support and sustain the recovery in growth.

But the ongoing supply-side constraints are likely to keep input prices and freight rates at elevated levels and could act as a drag on overall exports. While the low domestic infection count and healthy pace of vaccinations augurs well for the economy, looming threat of Omicron calls for observing greater caution and readiness to respond swiftly, it said.