‘Recovery not yet entrenched, may be gradual’

RBI Governor Das says upticks seen in some sectors appear to be levelling off, cites rising COVID-19 infections as challenge

Reserve Bank of India (RBI) Governor Shaktikanta Das on Wednesday said while there were some signs of ‘stabilisation’ in the pandemic-hit economy, a recovery was yet to take firm root and would probably take longer to gain momentum.

Observing that high frequency indicators of agricultural activity, manufacturing PMI and private estimates for unemployment pointed to some stabilisation of economic activity in the second quarter, Mr. Das said, “the recovery is, however, not yet fully entrenched and moreover, in some sectors, upticks in June and July appear to be levelling off”.

“By all indications, the recovery is likely to be gradual as efforts towards reopening of the economy are confronted with rising infections,” the RBI chief told members of the Federation of Indian Chambers of Commerce & Industry’s national executive committee in a speech, the text of which was shared on the central bank’s website.

A protracted nationwide lockdown and local restrictions in several States aimed at slowing the spread of the novel coronavirus notwithstanding, the total number of COVID-19 cases raced past the 50-lakh mark this week.

Noting that the immediate policy response had been to ensure stability, including the RBI’s own steps of cutting policy interest rates and enabling targeted infusion of liquidity, Mr. Das said looking ahead policy measures were required in specific focus areas to make sure that the growth that emerged after the recovery from the crisis remained durable.

Highlighting five critical areas that would determine India’s ability to sustain growth in the medium-run, he said these include human capital, in particular education and health; productivity; exports, which is linked to raising India’s role in the global value chain; tourism; and food processing and associated productivity gains.

“Indian banks and the financial system would need to respond proactively to opportunities arising from the NEP (new education policy) for new financing,” he asserted, adding that the the health sector should adopt a more comprehensive approach similar to the NEP.

He also said that in a vastly altered landscape for trade, India had an opportunity to expand exports by focusing on global value chains.

“There is a need to move up the value chain,” he said referring to the need to prioritise greater value addition to farm output.

Answering a question he said the restructuring window allowed for COVID-19-impacted companies was a balancing act to safeguard the interests of depositors, lenders and borrowers.

‘Depositors’ interest’

“The primary concern of any bank is protection of depositors’ interest because ultimately it is depositors’ money. There are crores of depositors while borrowers could be in lakhs only. There are small depositors, middle class and retired people who depend on their deposit income and their interest has to be protected,” he said.

Besides depositors, the aspect of financial stability also had to be kept in mind.

“Both these sides need to be balanced. The revival of such [COVID hit] businesses will also ensure that NPA levels are kept low and there will be quicker economic recovery,” he added.

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