The Indian economy, reeling under the impact of coronavirus disease (Covid-19) pandemic, will recover gradually, Reserve Bank of India (RBI) Governor Shaktikanta Das said. “Economic recovery is not fully entrenched; it will be gradual,” Das said in a virtual meeting of FICCI National Executive Committee.
The central bank chief also said that the RBI stands battle-ready to take whatever steps that are needed to be taken for the economy. Referring to the GDP contraction of 23.9 per cent in the first quarter (Q1), Das said that it is the “reflection of the ravages of the Covid-19”.
He further noted that high-frequency indicators like agricultural activity, Purchasing Managers Index for manufacturing, certain private estimates for unemployment, point to some stabilisation of economic activity in the second quarter of the current year. “Contractions in many other sectors are simultaneously easing,” Das said.
The government and RBI have been taking measures for mitigating the impact of pandemic on the economy by introducing stimulus packages, reforms, and interest rate cuts. However, the revival is expected to take time as there is still high uncertainty regarding Covid-19 cases across the country.
While the governor’s statement is seen as pessimistic, it is also being taken as a positive note for bond markets as this reduces the likelihood of the central bank raising interest rates even though inflation has been much above the RBI’s target range. Das said that while bond yields in August had risen 35 basis points (100bps = 1 percentage point) on the back of fears of inflation and oversupply of government bonds, the RBI managed to tame yields through open market operations.
Calling for policy focus on export strategy, Das said that a view had emerged after the global financial crisis (GFC) that India had missed the bus by not prioritising exports. This was because in the years that followed, there has been rising protectionism and weak global demand. “Notwithstanding these impediments, and also the significant decline in trade intensity of world GDP growth in the post-GFC period, opportunities for expanding exports arise from the vastly altered global landscape for trade where more than two-thirds of world trade occur through global value chains (GVCs),” said Das.
