Isn’t RBI Being Too Optimistic? Shaktikanta Das Says IMF Growth Production for India Highest Among G20 Nations

Money Matters

Isn’t RBI Being Too Optimistic? Shaktikanta Das Says IMF Growth Production for India Highest Among G20 Nations

RBI Governor Shaktikanta Das addressed the country for the second time since the nationwide lockdown to announce a string of measures. Before delivering some grim updates on the state of the economy, he began on a poetic note, quoting Mahatma Gandhi. “In the midst of death life persists, in the midst of untruth truth persists, in the midst of darkness light persists,” he said.

Das announced a string of measures to boost the economy – a reverse repo rate cut, a targeted long-term repo operation totalling ₹50,000 crore and exclusion of NPA classification during the moratorium period.

Speaking of the parameters in the economy, the Governor said inflation is on a decline trajectory and could even fall below the central bank’s four per cent target by mid FY21.

Painting a bleak picture for some other areas, he said that electricity demand had sharply declined by 25-30 per cent, contraction in exports of 34 per cent is worse than during the global financial crisis of 2008-09 and production of automobiles had also drastically fallen.

The RBI Governor commended banks and financial institutions for rising to the occasion to ensure smooth functioning during the pandemic. He pointed out that banking operations have been regular, there has been no downtime in internet and mobile banking and ATM operations stood at 91 per cent on average of the full capacity.

Shaktikanta Das’ comments around India’s growth projection drew the most eyeballs. The Governor stated “IMF projection of 1.9% GDP growth for India is highest in the G20. India is expected to post a sharp turnaround and resume its pre-covid, pre-slowdown trajectory by growing at 7.4 per cent in 2020-21.” Has the IMF tested positive for over-optimism?

The IMF has made drastic cuts in its growth projections for economies around the world, as the coronavirus pandemic has business frozen in its tracks.

With the economic situation around the world is volatile, unknown and ever evolving in a matter of every few days and the wild growth projections put out by various institutions could well be like shooting in the dark. According to Sanjay Jha, the national spokesperson of the Congress, the “optimism is misplaced”.

Member of parliament Mahua Moitra questioned the RBI, saying it was wasting liquidity measures and asked for further reverse repo rate cuts.

Financial journalist Ravi Krishnan pointed out that the “second package is better targeted towards NBFCs and HFCs, but could prove insufficient to meet the credit demands of those who need it the most.”

Time will tell whether the measures turn out to be a “bazooka” or a “swiss army knife”, but there’s no doubt that the RBI will have to remain proactive as the scenario keeps changing and keep announcing measures to arrest the slowdown in the economy.