Responsive measures

The Reserve Bank of India had kept policy rates unchanged in the June 4 monetary review. Also, the growth forecast was reduced by one per cent in the current financial year. The Monetary Policy Committee (MPC) had unanimously kept the repo rate at four per cent, the reverse repo rate at 3.35 per cent, the marginal standing facility rate at 4.25 per cent and the bank rate at 4.25 per cent. However, the MPC assured that it can cut the policy rates in the coming months if required. This is the sixth consecutive time that RBI has not made any change in policy rates.

According to the MPC, the pace of growth during the second half of the financial year can be regained only if businessmen are financially supported. The Central bank's emphasis has been on accelerating the growth rate and keeping the monetary policy stance soft. It has lowered the growth forecast for this year which saw a 7.3 per cent contraction the previous year.

Now, the real GDP growth is projected at 9.5 per cent in 2021-22. The estimated GDP growth is 18.5 per cent in the first quarter, 7.9 per cent in the second quarter, 7.2 per cent in the third quarter and 6.6 per cent in the fourth quarter. The consumer price index (CPI) inflation in FY 2021-22 is estimated to be 5.1 per cent. Retail inflation is estimated to be 5.2 per cent in the first quarter, 5.4 per cent in the second quarter, 4.7 per cent in the third quarter and 5.3 per cent in the fourth quarter.

RBI will buy government securities worth Rs 40,000 crore on June 17, and Rs 1.20 lakh crore in the second quarter. It will also buy bonds worth Rs 10,000 crore issued by the states. According to the Central bank, foreign exchange reserves may touch up to the the level of USD 600 billion in the coming weeks. More foreign exchange reserves help to keep the value of rupee stable against the dollar and make it easier to import essential goods.

In view of the pandemic, a special loan window will be opened for the hospitality sector. Under this scheme, travel agents, tour operators, adventure-heritage service providers, aviation-related ground handling and supply chain services, private bus operators, car repair and car hire providers, event organisers, spa clinics and beauty parlour operators can take loans. Banks can borrow from the Central bank at the repo rate for three years to lend businessmen at a concessional rate; the scheme will be available till March 31, 2022. Apart from this, 16,000 crore rupees will also be made available for lending to SIDBI so that loans can be made available at concessional rates to MSMEs.

The Central bank had announced plans to keep the popular National Automated Clearing House (NACH) system operational for seven days a week. NACH system allows the large-scale transfer of subsidy amount to the beneficiaries through Direct Benefit Transfer (DBT). Its importance has increased even more during the pandemic. It provides a facility to transfer payments like dividend, interest, salary and pension to multiple accounts in one go. Apart from this, it also facilitates the deposit of electricity bills, telephone bills, gas connection bills, water bills, loan instalment, mutual fund, insurance instalment etc.

In this system, the money is automatically debited from the account through NACH when the customer gives consent for the transfer of money through Electronic Clearance Service (ECS) to another bank. Therefore, if someone has taken the facility of automatic payment or ECS of any kind of instalment or bill from their bank account, then they will always have to maintain sufficient balance in the account from August 1, failing which the payment or standing instruction will fail.

Credit offtake is at its lowest level in the pandemic. For this reason, the interest rate of loan is low. The banks have to keep a certain spread between the loan interest rate and the deposit rate, because only by doing so can they earn profits. In such an arrangement the loan interest rate is high, and the deposit rate is low. At present, due to the low loan interest rate, the deposit rate is also at its lowest level.

According to KV Subramaniam, Chief Economic Advisor to the Central Government, the economy will start coming back on track from the month of July, as the number of people getting infected in the second wave has decreased significantly in the first week of June. States are removing restrictions in a phased manner. It is expected that by the month of July, the shortage of vaccines will be removed, and economic activities will also accelerate as a result.

He also said that it is not possible to achieve the fiscal deficit and disinvestment target due to the pandemic. The fiscal deficit for FY 2020-21 is estimated to be 9.3 per cent of GDP, which is lower than the government's earlier estimate of 9.5 per cent.

The impact of the second wave is gradually decreasing. It is hoped that the situation will come under control by the last week of June. Therefore, economic activities can pick up from the month of July. Right now, the offtake of the loan is low. The credit growth rate of banks is as high as five to six per cent, which is normally in two digits in normal conditions. Therefore, there was no justification for the Central bank to cut the repo rate in the latest monetary review. If credit offtake picks up, the government may cut policy rates in the coming months.

Views expressed are personal