The RBI Governor Shaktikanta Das has said that the GDP growth in India in 2020-21 is estimated to remain in the negative territory.
“India is seeing a collapse of demand. Private consumption has seen the biggest blow due to the Covid-19 outbreak, investment demand has halted. The government revenues have been impacted severely due to slowdown in economic activity,” said Das in a video conference.
However, he said that the combination of fiscal, monetary, and administrative actions will create conditions for the revival of the economy in the second half of FY-21.
India’s GDP growth will be in negative territory in 2020-21 as the outbreak of coronavirus has disrupted economic activities. Das said the combined impact of demand compression and supply disruption will depress economic activity in the first half of the current fiscal.
“Assuming that economic activity gets restored in a phased manner in the second half of this year and taking in consideration favourable base effect, it is expected that combined fiscal, monetary and administrative measures currently undertaken by both the government and RBI create conditions for gradual revival of activities in the second half of 2020-21.
“GDP growth in 2020-21 is estimated to remain in the negative territory with some pick up in growth impulses in the second half of 2020-21 onwards,” he said.
He stated, once again central banks have to answer in defence of the economy due to the COVIDー19 OUTBREAK.Damage caused by COVID-19 brought forward a need for an off-cycle meeting of the Monetary Policy Committee in place of the earlier scheduled meeting between June 3rd to 5th 2020.
MPC wrote unanimously for deduction in policy repo rate and for maintaining the accommodative stance of monetary policy as long as necessary to revive growth and mitigate the impact of COVID-19.On the quantum of reduction the MPC noted with a 5:1 majority to reduce the policy repo rate by 40 basis point from 4.4% to 4%. MSF rate and the Bank rate reduced to 4.25 and reverse repo rate to 3.35%.
Policy actions delineated into 4 categories:
1. Measures to improve the functioning of markets and market participants;
2. Measures to support export and imports;
3. Efforts to further ease financial stress caused by Covid-19; and
4. Steps to ease financial constraints by states governments.
To improve the functioning of Markets- (75% of alloyed limits be invested) An additional 3 months will be allowed to FPI’s to full fill this requirement.
Export and Import measures: Decided to increase the maximum pre-shipment and post-shipment export credit from Maximum 1 year to 15 months.Further,it has been decided to extend a line of credit of Rs. 15000 Crores to the EXIM Bank for a period of 90 days with a rollover of upto 1 year.
Extend time period for completion of outward remittances against normal imports excluding diamonds and jewellery into India from 6 months to 12 months.
Measure to ease the financial stress: The measures are being further extended by 3 months from 1st June till 31st August, 6 measures declared by RBI on 27th March and April 17th 3 months moratorium, etc.
The group exposure limits Banks are being increased from 25% to 30% of eligible capital base for enabling the corporate to meet their funding requirements from the bank.
To ease the bond retention pressure on states, relaxing the rules governing the withdrawal from CSF. This will enable the states to meet about 45% of the redemption of their market borrowing due in the current year 2021.
When the Tide turns and all the Ships are down, It is to the central banks that the World turns for support. RBI is at the forefront to take the measures.
Concluding on the optimistic note he stated that “today’s trials may be traumatic but together we shall triumph.”
-India Legal Bureau