With the vaccination drive picking up pace and COVID-19 mortality rate coming down, it is time for India to embark on a new trajectory of sustainable and inclusive growth, said a Reserve Bank article on the 'State of Economy'. Domestic demand is gaining strength while aggregate supply conditions are recouping, powered by the robust performance of kharif agricultural production and revival of manufacturing and services, said the article authored by a team of RBI officials led by Deputy Governor M D Patra.

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"Amidst an accentuation of global risks, the Indian economy is picking up steam, although the recovery is uneven and trudging through soft patches. The step up in vaccination, slump in new cases/mortality rates and normalising mobility has rebuilt confidence," it noted. It added that softer than expected food prices have eased headline inflation into a closer alignment with the Reserve Bank target.

Observing that India will need policies that channel energies to regain the demographic dividend, the article said "we can do it - recent outlook upgrades cite India's strong fundamentals, the receding risks of a negative feedback between the real economy and the financial system, high capital cushions and ample liquidity."

"The time is right for setting India on a new trajectory of sustainable and inclusive growth. After all, October marks the ending and beginning of things, a symphony of permanence and change," it said. It made a disclaimer that the views expressed in the article are those of the authors and do not necessarily represent the views of the Reserve Bank of India (RBI).

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The article also made a case for longer policy support for a sustained and inclusive recovery, saying the choice of policy mix would need careful consideration and sensitivity "as it is expected that employment may weigh on the recovery, with people having lost incomes and jobs, and those that have jobs have lost purchasing power." It further said the hiring prospects are brightening ahead of the festivals, with entry level hiring growing at the fastest pace. The IT sector is the leader in terms of the intent to hire, followed by education services, healthcare and pharmaceuticals.

Mirroring the spurt in domestic economic activity, India's merchandise imports touched a historic monthly high of USD 56.4 billion in September, while imports grew by almost 50 percent during the month over the corresponding pre-pandemic level, fuelled by strong domestic demand for petroleum products, gold, vegetable oil and electronic goods.

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Looking ahead, it said, the main downside to the prospects for the Indian economy, abstracting from the pandemic, is the possibility of a sudden accentuation of global risks. "First, there are now clearer indications that the momentum of global growth is slowing, especially in the countries that were to be its key drivers. Retail sales spending, global car sales, industrial production and world merchandise trade have moderated, with shortages widening in key sectors such as semi-conductors and shipping," it said.

Second, the pandemic has put world trade at risk, the report said, adding it has had an unprecedented impact on container shipping and global supply chains, forces that had kept globalisation going strong. Congestion at ports in the US, Europe and Asia have disrupted sailing schedules and equipment shortage, particularly in exporting countries, and has created breaks in supply chains.

The article also stressed that the elevated inflation levels among developed and developing countries alike are widely regarded as transitory but the sense is that it is expected to stay for longer, at least into 2022.