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Economy in new fiscal: RBI stays with forecast, says surge won’t impact growth

Many parts of the country, mostly from Maharashtra, are seeing a massive surge in Covid infections, roiling the equity and bond markets. GDP growth had contracted 23.9 per cent in the June quarter of 2020-21 when Covid hit the economy hard.

By: ENS Economic Bureau | New Delhi |
Updated: March 26, 2021 7:54:57 am
rbi, rbi news, rbi governor shaktikanta das, rbi monetary policy committee, rbi mpc meeting, rbi mpc outcome, rbi mpc resultRBI Governor Shaktikanta Das (Express Photo by Prashant Nadkar)

Reserve Bank of India Governor Shaktikanta Das Thursday said the new wave of coronavirus infections was unlikely to impact the economic recovery, and maintained the RBI’s recent 10.5 per cent growth forecast for the coming fiscal year (2021-22).

The RBI Governor’s assurance comes in the wake of apprehensions about surging new Covid infections and lockdowns being clamped in many cities. The Sensex had plunged over 1,600 points to 48,440.12 in the last two sessions mainly on worries about rising Covid cases. The RBI’s estimate is in line with the pre-Budget Economic Survey that predicted a ‘V-shaped’ recovery, and said that the Indian economy will rebound with 11 per cent growth in the next financial year.

“Revival of economic activity should continue unabated and I don’t see a downward revision in 10.5 per cent growth in the coming fiscal which the RBI has given last month,” Das said at the Times Network India Economic Conclave. He said he did not foresee a repeat of the nationwide lockdown that the country witnessed last year.

Many parts of the country, mostly from Maharashtra, are seeing a massive surge in Covid infections, roiling the equity and bond markets. GDP growth had contracted 23.9 per cent in the June quarter of 2020-21 when Covid hit the economy hard.

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“The rapid progress in vaccine has upgraded the global outlook although we are not out of the woods yet as fresh waves of newer variants of the virus bring in fresh concerns,” he said.

While the global economy continues to reel under the impact of this unprecedented shock, the near-term financial stability risks have been contained on account of coordinated interventions of central banks across the globe, Das said.

“I wish to reiterate that we at the Reserve Bank are fully committed to use all our policy tools to secure a robust recovery of the economy from the debilitating effects of the pandemic,” he said. The Reserve Bank remains devoted to build an enabling environment to develop the financial sector and create necessary preconditions for growth while preserving financial stability, Das said. The Governor also said the RBI will ensure that the rupee is kept stable. On cryptocurrencies, he said the RBI has flagged major concerns to the government and it is still under examination. “I do not think there is difference of opinion between the RBI and government on cryptocurrencies,” he said.

The RBI Governor said that the central bank is in talks with the government regarding the privatisation of public sector banks and the process will go forward. Maintaining banking sector health with strong capital base and ethics-driven governance remains a policy priority, he said.

He spoke four distinct sets of banking landscapes emerging in the current decade. “The first set will be dominated by a few large Indian banks with domestic and international presence. Second, there will be several mid-sized banks with economy-wide presence. The third set would encompass smaller private sector banks, SFBs, regional rural banks and co-operative banks, which may specifically cater to the credit requirements of small borrowers,” he said.

Das said the fourth segment would consist of digital players who may act as service providers directly to customers or through banks as their agents or associates. In fact, digital players would increasingly emerge as critical pieces across all segments.

He also underlined the huge role that innovation and technology has played in serving customers better and quicker. He said the central bank processed 274 crore digital transactions to provide direct benefit transfer (DBT) to people, most of which happened during the Covid pandemic.

According to him, the increased use of digital payments brought about by Covid could fuel a rise in digital lending in the current decade as companies accumulate consumer data and enhance credit analytics. “This in turn presents new and complex trade-offs between financial stability, competition and data protection; thereby, warranting new regulatory frameworks and novel ways of monitoring,” he said.

It is imperative for the financial sector regulators to monitor global developments and formulate policy responses to the risks and the opportunities, Das said.

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