Fighting economic slowdown will require more tangible measures: Pronab Sen
New fiscal measures announced by the RBI
With growth slowing down, the Reserve Bank of India announced a decision today to lower key lending rates for commercial banks by 25 basis points, to 5.75 per cent from 6.0. This fiscal measure is seen as one more step by the RBI to increase liquidity in the market and increase economic activity.
Experts believe the move will act as a stimulus, especially in the auto and realty sector. However, there is apprehension that the move is incomplete without more concrete measures by the Central government.
In a clear signal of change in its stance, the RBI also reduced its growth forecast for the economy to 7 per cent in 2019-20 from 7.2 per cent. The Monetary Policy Committee (MPC) of the Reserve Bank took these decisions in its second monetary policy review of the ongoing fiscal. This is the third reduction in the repo rate in 2019.
“Fiscal measures are just one part of it. It may take some time to play up. A continued growth can only be assured if more tangible measures are taken by the government as soon as possible,” says India’s former chief statistician Pronab Sen to Asiaville.
Strengthening schemes line MNREGA, expanding the net of PM-KISAN scheme, etc. are some actions taken by the government that could help fight the economic slowdown. The measures taken today have more to do with increasing the liquidity of the banking sector and this post-election decision of the RBI has to also do with the whopping amount of money used in the election funding. This needs to be brought back into circulation, Sen said.
He said that the formation of cabinet committees on investment and employment yesterday is also a sign of “exceptional concern of the government on the economic slowdown.”
“It is a clear sign of government coming out of the denial mode to recognise the problem. But the pertinent question here is what action would this cabinet committees be able to co-ordinate when there are no real ground level data available with the government,” Sen told Asiaville.
Market experts feel that the RBI move today will lead to greater credit offtake and greater demand for consumer goods.
“The high interest rates and liquidity constraints have been sort of a big bottleneck for the buyers. A lower repo on lending will reduce interest cost and the banks will surely pass on the benefits to the end customers, thereby ushering in some growth,” market analyst Ninad Sheth told Asiaville.
The RBI also announced other measures like doing away with charges on RTGS and NEFT transactions, which will encourage more transparent activity in the market.
The concern raised regarding the stock market not responding to the announcement positively is unfounded. The share market downfall today had more to do with the DHFL crisis, Sheth said.