Economic recovery in India likely to be gradual as revival efforts hit by COVID-19 spike, says RBI chief Shaktikanta Das


He said financial market conditions in the country eased significantly across segments in response to the frontloaded cuts in the policy repo rate

Reserve Bank of India Governor Shaktikanta Das said that economic recovery in India may be gradual, as efforts towards revival are confronted with rising cases of COVID-19 cases.

High frequency indicators of agricultural activity, the purchasing managing index (PMI) for manufacturing and private estimates for unemployment point to some stabilisation of economic activity in Q2, while contractions in several sectors are also easing, said the RBI governor while delivering a speech at FICCI national executive committee meeting on Wednesday.

“The recovery is, however, not yet fully entrenched and moreover, in some sectors, upticks in June and July appear to be levelling off,” Das said.

The central bank chief said that financial market conditions in the country eased significantly across segments in response to the frontloaded cuts in the policy repo rate and large system-wide as well as targeted infusion of liquidity by the RBI.

“Despite substantial increase in the borrowing programme of the government, persistently large surplus liquidity conditions have ensured non-disruptive mobilisation of resources at the lowest borrowing costs in a decade,” said Das.

The RBI chief further said that although bank credit growth remained muted, scheduled commercial banks’ investments in commercial paper, bonds, debentures and shares of corporate bodies in this year up to August 28 increased by Rs 5,615 crore as against a decline of Rs 32,245 crore during the same period of last year.

Moreover, the benign financing conditions and the substantial narrowing of spreads have spurred a record issuance of corporate bonds of close to Rs 3.2 lakh crore during 2020-21 up to August, he added.

On the gross domestic product (GDP) data released by the government last month, Das said it was a "reflection of the ravages of the COVID-19".

Recognising the potential of tourism sector, which contributes a major chunk to the country's GDP and employment sector, Das said that the government provided targeted policy support.

“Research conducted by a private agency suggested that if we can increase international tourist arrivals to 20 million (i.e., about double of current arrivals), the incremental income would be $19.9 billion, benefiting an additional 1 million people in the travel and tourism industry,” he said.

The country's GDP crashed a record 23.9 percent in the April-June period, as consumer spending, private investments and exports collapsed during the world's strictest lockdown imposed in late March to curb the spread of COVID-19.

Similarly, the retail inflation in the country eased marginally in August, but remained above the RBI’s comfort level of 4-6 per cent for the fifth month in a row.

On global economy, Das said the world is estimated to have suffered sharpest contraction in living memory in April-June 2020 on a seasonally-adjusted quarter-on-quarter basis. The global merchandise trade registered a steep year-on-year decline of over 18 percent in the second quarter, the RBI chief highlighted, citing World Trade Organisation (WTO) data.

Image credit: The Week

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