New Delhi: RBI Governor Shaktikanta Das on Wednesday said the economic recovery is still not well entrenched and that the central bank is “battle-ready” to take appropriate measures to support growth.
Addressing a virtual conference organised by industry body Ficci, Das said that Gross Domestic Product (GDP) data released by the government was a “reflection of the ravages of the COVID-19”. The economy contracted 23.9 percent during the April-June quarter on account of the strict lockdown imposed by the government towards end of March to check the spread of coronavirus infections.
“Nevertheless, high frequency indicators of agricultural activity, the purchasing managers’ index that is PMI for manufacturing and certain private estimates on unemployment point to some stabilisation of economic activity in the second quarter of the current year, while of course contractions in several other sectors are also simultaneously easing,” he said.
However, Das said that the economic recovery was not yet fully entrenched and also that the recovery is likely to be gradual. “The recovery is, however, not yet fully entrenched and moreover, in some sectors, the uptick, which was noticed in June and July they appear to have levelled off. By all indications the recovery is likely to be gradual as efforts towards the reopening of the economy are confronted with rising infections,” he said.
At the same time, Das assured the industry that the RBI stands “battle ready” and whatever measures are required will be taken to support liquidity, growth and control price rise. According to him, the immediate policy response to COVID-19 in the country has been to prioritise the stabilisation of the economy and support quick recovery policies for durable and sustainable high growth in the medium term post the coronavirus.
“We are also very carefully monitoring the markets. As and when required further measures will be taken. I even said it earlier during my statements that the RBI stands fully prepared. I had used the terminology that the RBI stands battle ready and whatever measures are required will be taken up by the RBI,” he said.
Despite substantial increase in the borrowing programme of the government, Das said that persistently large surplus liquidity conditions have ensured non-disruptive mobilisation of resources at the lowest borrowing costs in a decade. Currently, government paper borrowing rates are the lowest in the last 10 years, he added.
Moreover, Das said that 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. Noting that fragility of NBFCs is a concern, Das said the RBI is regularly monitoring the health of top 100 NBFCs and it would be the endeavour of the central bank that no large institution should fail. Prior to the IL&FS crisis, Das said there were light touch regulations for the NBFC sector and the RBI is now trying to bring the regulations at par with banks so that there is no repeat of failure.
Regarding loan restructuring scheme, the RBI chief said the emphasis of resolution plan is to enable companies facing cash problem due to the COVID-19 crisis to come back to normalcy and resume their activities, he noted.
Noting that India’s participation in Global Value Chains (GVCs) has been lower than many emerging and developing economies, he said there is need to tap this potential segment for bolstering global trade and growth. With strong drug manufacturing expertise at low cost, India is one of the largest suppliers of generic drugs and vaccines, he said.