April 23, 2021 3:00:51 am
Reserve Bank of India (RBI) Governor Shaktikanta Das has said the rapidly rising cases of Covid-19 is the single biggest challenge to ongoing recovery in the Indian economy. “The renewed jump in Covid-19 infections in several parts of the country and the associated localised and regional lockdowns add uncertainty to the growth outlook,” he said in the Monetary Policy Committee (MPC) meeting on April 7.
According to the minutes of the MPC meeting released by the RBI on Thursday, Das said the learnings of the last one year should help in managing the crisis as it unfolds. The need of the hour is to effectively secure the economic recovery underway so that it becomes broad-based and durable, Das said.
The policy panel kept the key policy rate — repo rate — unchanged at 4 per cent at its April meeting. The RBI had projected real GDP growth for FY22 at 10.5 per cent, consisting of 26.2 per cent growth in Q1, 8.3 per cent in Q2, 5.4 per cent in Q3 and 6.2 per cent in Q4 of the ongoing fiscal.
“In such an environment, monetary policy should remain accommodative to support, nurture and consolidate the recovery. We need to continue to sustain the impulses of growth in the new financial year 2021-22,” Das said.
The curve of active cases of Covid-19, which was on a downward trend till mid-February, has changed its course with a surge in several parts of the country. Experiences of other countries suggest that this new surge can be more infectious due to several mutations of the virus, he added.
Sustaining growth impulses
The RBI had projected the real GDP growth for FY22 at 10.5 per cent. In the April meeting, Das said the monetary policy should remain accommodative to support, nurture and consolidate the recovery. And there is a need to continue to sustain the impulses of growth in FY22.
RBI Deputy Governor Michael Patra said risks to the recovery have become accentuated since the MPC’s February meeting — new waves of infections and the inexorably slow pace of vaccinations, moderation in several high frequency sentiment indicators, global risks and spillovers.
“Monetary policy has to remain supportive of the economy until the recovery is more sure footed and its sustainability assured,” Patra said.
“Recovery is beginning to lose some steam. The IIP returned to the contraction zone in January and will remain so in February,” RBI Deputy Governor Mridul K Saggar said. The output of the eight core industries, in February, registered its most negative growth since September 2020 and the largest month-on-month contraction since April 2020.
Jayanth R Varma, MPC Member, said, “The economic recovery after the pandemic shock of 2020 remains uneven and incomplete, and the renewed jump in Covid-19 infections in certain parts of the country has increased the downside risk to the growth momentum.” On the other hand, inflation rates have been consistently well above the mid point of the target zone and is forecast to remain elevated for some time.
“This is a difficult situation, but I believe that the balance of risk and reward is in favour of monetary accommodation,” he added.
Going forward, success of vaccinations, universal adoption of preventive measures to severely limit the chances of transmission of the virus and investment in health services to assure access to health care will define the course of economic recovery. “As many have noted, the critical factor affecting sustained revival of the economy will be the victory in the battle over the coronavirus,” said Shashanka Bhide, Member, MPC.
According to Ashima Goyal, Member, MPC, “We have to also make up for lost time; alleviate widespread job loss and income stress.”
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