RBI’s stimulus package

The Reserve Bank of India (RBI) has come out with a stimulus package that is part of a series to counter the ill-effects of the countrywide lockdown. It has two components, including Rs 50,000 crore for NABARD (National Bank for Agriculture and Rural Development), SIDBI (Small Industries Development Bank of India) and NHB (National Housing Bank) for onward transmission to the ones who actually need succour — small, medium and tiny urban and rural units and micro finance institutions. The second component is raising Rs 50,000 crore for banks which in turn subscribe to bonds issued by corporates. Having slipped up in raising the first tranche of Rs 75,000 crore in March when it did not specify any conditions, the RBI is now making sure that half the money goes only to the targeted beneficiaries and not to mega corporates and PSUs.

The RBI’s obvious focus is to ensure that there is enough money with financial institutions of all shapes and sizes to lend to customers. In line with this strategy, the RBI has lowered the interest rate at which banks park their money with it (reverse repo) to prod them into lending this money for productive activity. But the RBI could be shooting in the dark, hoping that its dart hits the target. Is there appetite for funds when even during the pre-Covid period, the investment rate had skid to an 11-year-low? The data paucity led even the chief of the country’s Central Bank to rely on International Monetary Fund (IMF) figures for economic growth while dismissing the available data as too disjointed to permit a comprehensive assessment.

Earlier, a government that prominently claims that vigilance is its prime focus had no clue about the great migrant torrent to their villages. Or about the domestic production capacity of HCQ (hydroxychloroquine) tablets and ventilators that forced an embarrassing diplomatic flip-flop. The government also needs to sidestep the proclivity for headline-grabbing news. The RBI’s package was immediately touted by many higher-ups as an immediate panacea. Most of it is actually meant to meet long-term credit needs. Now that Finance Minister Nirmala Sitharaman will soon announce sector-specific relief measures, a government overtly fond of PowerPoint presentations could at least educate the people about the basis for each instalment of the largesse.