The Reserve Bank of India has retained India’s GDP growth projection for the current financial year at 10.5% but has cautioned that the recent surge in Covid-19 infections has added uncertainty to the domestic growth outlook amidst tightening of restrictions by some state governments.

In its last policy review, the RBI had projected the FY22 GDP growth at 10.5% for FY’22.

The projection of real GDP growth for 2021-22 consists of 26.2% in Q1, 8.3% in Q2, 5.4% in Q3 and 6.2% in Q4.

The RBI said that though the firms engaged in manufacturing, services and infrastructure sectors were optimistic about a pick-up in demand, "consumer confidence, on the other hand, has dipped with the recent surge in Covid infections in some states imparting uncertainty to the outlook."

Das noted the recent surge in infections has imparted greater uncertainty to the outlook and needs to be closely watched, especially as localised and regional lockdowns could dampen the recent improvement in demand conditions and delay the return of normalcy.

RBI governor Shaktikanta Das said that the increase in international commodity prices since the February monetary policy and recurrence of global financial market volatility like the bout experienced in late February accentuates the downside risks.

He noted that global growth is gradually recovering from the slowdown, but it remains uneven across countries and is supported by ongoing vaccination drives, sustained accommodative monetary policies and further sizable fiscal stimulus.

The upside risks, however, come from the vaccination programme being speeded up and increasingly extended to the wider segments of the population; the gradual release of pent-up demand; and the investment-enhancing and growth-supportive reform measures taken by the government, he said.

"In India, we are now better prepared to meet the challenges posed by this resurgence in infections. Fiscal and monetary authorities stand ready to act in a coordinated manner to limit its spillovers to the economy at large and contain its fallout on the ongoing recovery," he said.

He further noted that "in the domestic economy, the focus must now be on containing the spread of the virus as well as on economic revival - consolidating the gains achieved so far and sustaining the impulses of growth in the new financial year (2021-22)".

"Juxtaposition of high frequency lead and coincident indicators reveals that economic activity is normalising in spite of the surge in infections," he added.

Rural demand remains buoyant and record agriculture production in 2020-21 bodes well for its resilience. Urban demand has gained traction and should get a fillip with the ongoing vaccination drive, Das said.