Home / Politics / Policy /  Ball in government’s court after RBI status quo on monetary policy

With inflation forcing the Reserve Bank of India (RBI) to hold off on further easing of monetary policy, the pressure is now on the Union government to support an economic recovery amid the world’s fastest rise in coronavirus cases.

The government is discussing measures to be implemented but is waiting for more signals about the direction the economy is taking, according to five people who are aware of these discussions.

“Presentations are being readied with suggestions and recommendations from ministries for the Prime Minister to consider," said a senior member of Modi’s council of ministers, one of the five cited above.

The Indian economy is struggling to recover since the government imposed a stringent lockdown in March. While the shutdown brought most industries to almost a standstill and depressed demand, it has failed to slow the spread of the coronavirus with the number of infections crossing the 2.2 million mark. With the gross domestic product (GDP) set to contract by the most since Independence, the government is readying urgent steps to stimulate the economy.

Growth concerns
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Growth concerns

“The next stimulus will be timed after examining the June quarter GDP growth figures—to be released end of August. The focus will be on migrant workers and urban joblessness. Under Atmanirbhar Bharat, more policy reforms may be announced such as production-linked incentive schemes for more consumer goods sectors," a government official said seeking anonymity.

Businesses are pinning hopes on more demand-boosting measures from the government, including ramping up the execution of infrastructure projects, more economic reforms and a goods and services tax (GST) rate cut if the other steps fail to revive consumption.

Business leaders said they are worried about movement restrictions imposed by local authorities, an issue that was also cited by RBI last week as a reason for several high-frequency economic indicators levelling off.

Another senior government official said there is a plan to launch a programme that will offer jobs to the urban poor.

The next one month will be crucial for the government to firm up its plans now that the RBI has provided a window to recast stressed assets without having to classify them as non-performing, said a third government official, who also spoke on condition of anonymity as the discussions are not final. “We will get a clearer picture in the next one or two months," this official said.

A revival of demand has to be the focus of the government measures, said D.K. Aggarwal, president of PHD Chamber of Commerce and Industry. “If demand is not reviving in the next one month, a 20% cut in GST rates across slabs would be a great booster to revive consumption sentiment in the economy," said Aggarwal. He also cautioned against local lockdowns that disrupt economic recovery and consumption.

The need now is to ensure speedy implementation of the steps announced by the government and RBI, including the planned infrastructure projects with 100 trillion investment, said Chandrajit Banerjee, director general of the Confederation of Indian Industry. “This spending must be fast-tracked to achieve as much as possible in the next two years," said Banerjee. District-level spending on healthcare is now critical to contain the spread of coronavirus so that economic recovery can take place, he said.

Economists are of the view that another round of stimulus following the 20 trillion package announced earlier is needed. Austerity is not the solution to the coronavirus crisis and India needs to offer more relief measures to households and businesses, Mint reported on 28 July, citing former RBI governor Raghuram Rajan.

After a bounce-back in June, high-frequency macro indicators showed a deceleration in activity in July as the pandemic spread rapidly. India’s manufacturing activity in July contracted at a faster pace than in June, signalling local lockdowns imposed across the country are impacting businesses.

Elizabeth Roche, Asit Ranjan Mishra, Gireesh Chandra Prasad, Shreya Nandi, Prashant K. Nanda and Utpal Bhaskar contributed to the story.

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