GDP growth in 2020-21 is expected to remain in negative territory: RBI Gov
“The combined impact of demand compression and supply disruption will depress the economic activity in the first half (financial) year,” RBI Governor Shaktikanta Das said while announcing a slew of measures to fight the economic crisis triggered by the COVID outbreak.
In order to bring the economy back on track, the Reserve Bank of India (RBI) has announced yet another slew of measures. RBI Governor Shaktikanta Das said that COVID-19 has crippled the global economy and once again the Central banks have to answer the call to the frontline in defence of the economy.
The RBI has reduced the repo rate from 4.4 % to 4% per cent. Repo rate is the rate at which the central bank lends money to commercial banks. The announcement comes in the light of the Monetary Policy Committee (MPC) meetings.
The COVID-19 outbreak has driven the global economy into recession, the RBI Governor said, adding that the volume of the world trade can shrink by 13 to 32 per cent – as projected by the World Trade Organisation (WTO).
The RBI has observed that electricity and petroleum consumptions have plunged into steep declines.
“Agriculture and allied activities have given a beacon of hope,” Das said, adding that India is to witness a normal monsoon this year which is a sign of relief.
However, the inflation is set to remain a major concern in the coming days. “Food inflation has suddenly surged to 8.6 per cent in April,” Das said.
The MPC has observed that the COVID-19 outbreak will depress the economic activities in India in the financial year 2020-21.
“The combined impact of demand compression and supply disruption will depress the economic activity in the first half (financial) year,” Das said.
He further added: "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.
However, the RBI has said that the possibilities of improvement depend on the flattening of the COVID-19 curve and phased exit of the social distancing measures and lockdown.
Notably, the MPC has said the impact of the COVID outbreak has more than the expected projections. Beyond the destruction of economic activities, the livelihood and health are severely affected, the RBI Governor said.
Das said that even though the Central banks are typically seen as conservative institutions, it is their responsibility to respond to the economic crisis triggered by the global pandemic.
Das read out three priorities of the RBI in order to bring the economy of the track:
1. To keep the financial system and financial market sound, liquid and functioning
2. To ensure access to finance to all
3. To preserve the financial stability
This was the third press conference announced and a slew of announcements made by the RBI governor targeted to battle the economic crisis triggered by the COVID outbreak.