RBI identifies sectors for Rs1-lakh cr liquidity thrust

Strap: Agri, FMCG, auto, pharma, power expected to take off first; GDP to shrink 9.5%

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Box 1

Some hope in Q4

While GDP is expected to decline by 9.5% for 2020-21 as a whole, some positivity is expected in Q4 after contraction in earlier quarters.

Q1: -23.9%

Q2*: -9.8%

Q3: -5.6%

Q4: 0.5% (*RBI projections for Q2, 3 & 4)

Box 2

Inflation may ease to 4%

The RBI expects inflation to ease close to the targeted range of 4 per cent, plus or minus 2 per cent, in Q4. It noted that the recent pick-up in inflation was due to supply disruption and higher markups during the lockdown.

Box 3

Sensex rallies 327 pts

Extending its gains for the seventh straight session, the longest winning streak in almost a year, the Sensex rose by 326.82 points or 0.81 per cent higher at 40,509.49.

8 paise gained by rupee to close at 73.16 against dollar

(figure points)

Rs20,000 cr announced for open market operations; will be used for buying govt securities to ease liquidity conditions

Rs7.5 cr new ‘Regulatory Retail’ threshold, up from Rs5 cr, to facilitate higher credit flow to retail and SME segments

Tribune News Service

New Delhi, October 9

While keeping the benchmark interest rate unchanged, the Reserve Bank of India (RBI) on Friday announced several additional measures to revive the economy, including a Rs 1 lakh crore liquidity chest for banks for lending via bonds and commercial papers in specific sectors.

Addressing the media after the three-day meeting of the reconstituted Monetary Policy Committee (MPC), RBI chief Shaktikanta Das gave an insight into the government’s thinking about reviving the economy. “In my view, it is likely to be a three-speed recovery, with individual sectors showing varying paces, depending on sector-specific realities,” he said.

The sectors that would “open their accounts first” are agriculture and allied activities, FMCG, two-wheelers, passenger vehicles and tractors; drugs and pharmaceuticals; and electricity generation, especially renewable.

The central bank signalled more easing ahead to support an economy that it sees contracting 9.5 per cent in the current fiscal. The MPC voted unanimously to retain the repo rate at 4 per cent while keeping its policy stance accommodative, implying it could ease again.

The RBI also decided to revise the differential risk weights applicable to individual housing loans, based on the size of the loan as well as the loan-to-value ratio (LTV). The central bank will maintain comfortable liquidity conditions and will conduct market operations in the form of outright and special open market operations of Rs 20,000 crore each.

The RBI chief had harsh words for a section of the industry and announced steps to improve the flow of credit to specific sectors while maintaining credit discipline. He also unveiled steps to boost exports, deepen financial inclusion and provide more credit to SMEs.

Inflation, according to the MPC having Ashima Goyal, Jayanth Varma and Shashanka Bhide as the new external members, will remain elevated but ease gradually towards the target by next March. Supply disruptions and associated rise in costs are the major factors driving up inflation. As supply chains are restored, these wedges should dissipate, it observed.

Das spoke of the Indian economy entering into a decisive phase in the fight against the pandemic as several high-frequency indicators point to the easing of contractions and the emergence of growth impulses. Kharif sowing especially had surpassed last year’s acreage while improved soil moisture conditions, along with healthy reservoir levels, have brightened the outlook for the Rabi season. Early estimates suggest that foodgrain production is set to cross another record in 2020-21.

With migrant labour returning to work, factories and construction activity are coming back to life. This is reflected in the rising levels of energy consumption and population mobility. “The mood of the nation has shifted from fear and despair to confidence and hope,” he noted.

Touching on the raging debate on the type of recovery expected–V, U, L, W or even K–Das said sectors that were resilient and labour-intensive will be the first to do well. In several of these areas, agricultural marketing reforms, accent on value chains encompassing cold storage, transport and processing and changes in labour laws will attract fresh investment.